Broadcom Corp warned revenue could fall as much as 13 percent this quarter due to broad- based weakness in demand, even in wireless, where it supplies chips for Apple Inc products such as the iPhone.
The shares in the maker of chips for products from cellphones to television set-top boxes fell about 5 percent after it forecast fourth-quarter revenue of $1.7 billion to $1.8 billion compared with Wall Street expectations for revenue of $2 billion, according to Thomson Reuters I/B/E/S.
The guidance is disappointing to say the least, said Sanford C. Bernstein analyst Stacy Rasgon. People thought there might be enough upside in the wireless business to offset the rest. It doesn't seem to be the case.
Chief Executive Scott McGregor told analysts on a conference call that Broadcom orders were slowing, particularly in the United States and Europe, because its customers were keeping product inventories low. But while McGregor would not say when he expects to see an improvement, he tried to be upbeat.
I don't think there's the shock to the system like we've seen in 2008, he said. It might just be a cleaning out of inventory and a snap back.
McGregor said Broadcom's wireless business would decline, despite strength in demand for chips that combine multiple functions such as Wi-Fi and Bluetooth connectivity. Rasgon said Apple uses Broadcom's combination chips in its iPhone.
McGregor also warned that broadband revenue would decline this quarter because the company decided to stop development of chips for digital television and Blu-Ray products. This could help its margins in future, according Rasgon.
It's a brutal commodity industry, Rasgon said, referring to the discontinued products.
The warning comes after rival chip maker Texas Instruments said its revenue could fall 10 percent this quarter.
I don't think anybody expected Broadcom to be guiding revenue down 10 percent, said RBC Capital Markets analyst Doug Freedman, referring to the midpoint of Broadcom's target range.
Freedman was surprised the forecast decline was in line with TI, which unlike Broadcom, is exposed to areas such as industrial equipment, which he had expected to be more vulnerable to economic shifts than the cellphone market.
This shows that communications is also going through some right-sizing, he said.
Broadcom's McGregor also said flooding in Thailand could affect the company because resulting shortages of hard disk drives might hurt the sale of products such as computers, for which Broadcom supplies parts. But he said without giving specifics that Broadcom might see a smaller impact than some companies.
The company also said fourth-quarter gross profit margins would be flat to slightly down from its third quarter gross margin of 49.5 percent, which Sanford C. Bernstein's Rasgon said already missed his estimate for 50.1 percent.
Broadcom's third-quarter revenue rose to $1.957 billion from $1.81 billion a year ago. Wall Street was expecting $1.952 billion.
The reported profit of $270 million, or 48 cents per share, compared with $328 million, or 60 cents per share, in the same quarter a year earlier.
Excluding items, Broadcom earnings would have been 82 cents per share compared with Wall Street estimates of 77 cents, according to Thomson Reuters I/B/E/S.
Broadcom shares fell to $33.90 in after-hours trading after closing down 4 percent at $35.80 on the Nasdaq stock market.