Author | U.S. Stock Study Club
After hours on March 3, Broadcom released a new quarterly earnings report, which is a standard double beat: revenue increased 15.8% year-on-year to $7.706 billion, more than expected $7.61 billion; diluted EPS increased 26.9% year-on-year to $8.39, more than expected $8.13. In addition, the CEO's guidance on a 20% increase in revenue over 22 years is feasible in the conference call, which means that growth is accelerating.
Under the guidance of eye-catching performance and guidance, Broadcom closed up 2.49% after hours, which is particularly rare in the current environment of general semiconductor slump. Let's take a closer look at the data.
01 Broadcom Introduction and Barriers
Broadcom is a global technology leader in designing, developing and delivering a wide range of semiconductor and infrastructure software solutions, with 99.9% of Internet traffic going through at least one Broadcom chip. Broadcom operates in two broad areas: semiconductor solutions and infrastructure software, while linking five end market segments (Networking, Wireless, Broadband, Storage Connectivity and Industrial) to support nearly all end-to-end connectivity involving the Internet.
Its portfolio is well positioned to meet the long-term critical needs of businesses and consumers for broadband access, network connectivity, servers, wireless, handsets and industrial applications. In order to maintain its global leadership position in infrastructure technology, Broadcom has previously made major acquisitions and diversified its business beyond its core semiconductor areas. For example, on November 4, 2019, Broadcom completed the asset acquisition of Symantec's security business, an established player in the field of cybersecurity, and expanded its business coverage in mission-critical infrastructure software on the basis of its existing customer base.
In addition, after shifting its focus to the data centers that currently account for more than 30% of total revenue, Broadcom has a strong service portfolio, especially the capabilities of 5G. In general, Broadcom maintains a high level of business barriers in all aspects.
Broadcom's two major businesses (semiconductor solutions and infrastructure software) and six terminal scenarios are shown below (further disassembled later):
Broadcom revenue composition
Source: Official channels
02 Financial report
According to the new quarterly financial report, Broadcom's revenue increased by 15.8% year-on-year to $7.706 billion, which can be seen intuitively from the model and continued the trend of accelerated growth. Gross margin of 65.5%, continued to increase by about 3 percentage points sequentially, the data is very good. This mainly reflects the tight demand in the downstream and the optimization of the business structure. According to management's analysis, there is still room for improvement in gross profit margin.
The R&D and sales management expense ratios were 15.7% and 4.2% respectively, and both had a steady downward trend, reflecting the expansion of scale effects. The result is also intuitive – the net profit margin has risen significantly to 31.1%.
By business segment, Broadcom's semiconductor solutions division generated revenue of $5.873 billion in the fiscal first quarter, accounting for 76% of net revenue, and infrastructure software accounted for 24%, essentially unchanged from the previous quarter.
Broadcom's semiconductor solutions, mainly including networking, wireless (the largest market), broadband, server storage and industrial services and other five segments, are widely used in telecommunications, enterprise, data center and network applications and other terminal scenarios. In addition, radio frequency (RF) semiconductor devices, wireless connectivity solutions and controllers, as well as data movement between servers and other hosts (e.g., PCs), storage systems, hard disks, and other storage devices for the wireless market, are available.
Take a closer look through the management conference call.
(1) Network services (Ethernet switch chips, etc.)
FY22Q1 network business (Ethernet switch chips, etc.) revenue increased 33% year-over-year to $1.9 billion, accounting for 32% of semiconductor revenue. This strong growth was driven by the massive deployment of Tomahawk 4 and upgrades across multiple hyperscale customer data centers.
Broadcom network business segmentation
As enterprise IT spending continues to accelerate, enterprise demand has grown strongly from the trough of last year's Q1. It is consistent with the previous forecast that "the actual deployment of the enterprise network is relatively lagging behind expectations and may continue to increase in the future".
At the same time, Super Cloud is upgrading data centers, and service providers and telcos continue to deploy next-generation fiber-to-the-home. Compared to its peak a year ago, the wireless business still maintained single-digit growth, and the core software business remained very stable. On the supply side, since Broadcom's products are still in low inventory in channels and customers, the lead time is still extended and remains unchanged.
(2) Wireless services (RF devices, power amplifiers, etc.)
FY22Q1 wireless business (RF devices, power amplifiers, etc.) revenue increased 4% year-over-year to $2 billion, accounting for 34% of the semiconductor revenue portfolio. North American customer demand for Broadcom products continued to be strong during the quarter, driving wireless revenue up 10% sequentially and 4% year-over-year from the peak quarter of FY21. Q2 wireless revenue is expected to see a seasonal decline, down around 15% month-on-month, but still up around 15% from a year ago.
(3) Broadband services (modems, satellite set-top boxes, WiFi6, etc.)
Since 2018, Broadcom has launched eight Wi-Fi devices, including three new products in 2021. Today, more than 80% of broadband infrastructure depends on Broadcom, more than 450 million client devices are based on Broadcom's products and technologies, and Broadcom's storage and data protection is used for 70% of enterprise servers.
Broadcom has become a market and technology leader in Wi-Fi for access gateways from home to business.
Broadcom broadband service segmentation
FY22Q1 broadband business revenue (modems, satellite set-top boxes, WiFi6, etc.) increased 23% year-over-year to $911 million, accounting for 16% of semiconductor revenue.
This is mainly due to the increased deployment of next-generation PON and DOCSIS (our cable modems), wi-Fi 6 and 6E in home gateways with high connection rates. Last quarter, Charter announced a trial of DOCSIS 4.0 running at 8.5 gigabit downlink speeds and 6 gigabit uplink speeds in CPE and retreat. Comcast began deploying their Wi-Fi 6E DOCSIS 3.1 gateway, and AT&T announced that it would offer multi-gigabit PON services on their gateway. All of these use Broadcom SoCs.
We remain the market leader in delivering Wi-Fi 6 and 6E chips to mainstream mobile phones, routers, enterprise access points, and carrier gateways. As of 22Q1, since the launch of Broadcom's Wi-Fi 6 and 6E, in just about three years, it has shipped more than 1 billion units.
Looking ahead, broadband services are expected to continue to grow by 20% year-on-year in Q2. As an industry leader, Broadcom is investing heavily in Wi-Fi 7 as a strategic complement to 10GPON and cable modems. It is also the next step in the development and deployment of global broadband. In the U.S. alone, the pending infrastructure access site will invest $65 billion over the next five years to connect more homes to high-speed broadband. The same thing is happening around the world as next-generation broadband is seen as a better alternative to 5G home connectivity.
(4) Server storage connection service (server, HDD/SSD, etc.)
Broadcom server storage connection business segmentation
FY22Q1 server storage connectivity business (servers, HDDs/SSDs, etc.) revenue increased 32% year-over-year to $801 million, accounting for approximately 13% of semiconductor revenue.
This is largely driven by a sustained recovery in enterprise IT spending, much of which is spent on upgrading computing services. Most computing services use Broadcom's MegaRAID or SAN for server storage connectivity. As enterprises upgrade to next-generation storage connectivity solutions to support the deployment of cutting-edge services, Broadcom will benefit from the increase in content.
Outside of the enterprise, as video content proliferates in social media, Broadcom's cloud customers are increasingly adopting nearline hard drives as their primary storage of choice. To manage the vast array of hard drives, they deployed storage services and expanders, which leveraged Broadcom's next-generation storage connectivity, chips, and software in large part, creating another driver of revenue growth — Broadcom is also a key supplier of Neuraline hard drive preamplifiers and rechannels, with Broadcom's revenue growing at more than 20 percent CAGR over the past five years.
Broadcom's Nearline revenue accounted for more than two-thirds of the hard drive business in the quarter. The adoption of next-generation technologies, coupled with continued strong demand from enterprises and hyperscale, is expected to enable Q2 server storage connectivity revenue to grow by more than 55% year-over-year.
(5) Industrial business (optocouplers, LEDs, etc.)
FY22Q1 Industrial business (optocouplers, LEDs, etc.) generated revenue of $243 million, representing approximately 4% of semiconductor revenue.
Driven by strong demand for electric vehicles, renewables, factory automation and healthcare, Q1 resale increased 37% year-over-year to $239 million. Broadcom's channel inventory remained at around a month, also reflecting strong resale performance, which is expected to remain strong in Q2.
03 The future
Overall, Broadcom's quarterly results have been very strong, and management expects semiconductor revenue to increase by 25% year-on-year, believing that this good trend will not end throughout 2022, at least until the first half of 2023, and the guidance can be said to be very strong and optimistic. Combined with the high barriers of Broadcom technology, it is undoubtedly a high-quality investment choice in the long run.
Note: This article is original by the US stock research agency team, please indicate the source when reprinting, thank you!
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