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Broadcom: Fiscal 2Q16 Financial Results

Enterprise storage revenue at $525 million down 23% sequentially

(in $ million) 2Q15 2Q16 6 mo. 15 6 mo. 16
Revenue 1,614 3,541 3,249 5,312
Growth   119%   63%
Net income (loss) 344 (1,255) 695 (878)

Broadcom Limited reported financial results for the second quarter of its fiscal year 2016, ended May 1, 2016, and provided guidance for the third quarter of its fiscal year 2016.
 
Recent Developments
Broadcom is the successor to Avago Technologies Limited. Following Avago’s acquisition of Broadcom Corporation (BRCM) on February 1, 2016, Broadcom Limited became the ultimate parent company of Avago and BRCM.

Financial results for the fiscal periods prior to the acquisition relate solely to the company’s predecessor, Avago. The financial results from businesses that have been classified as discontinued operations in the company’s financial statements are not included in the results presented below, unless otherwise stated.

Second Quarter Fiscal Year 2016 GAAP Results

  • Net revenue was $3,541 million, an increase of 100% from $1,771 million in the previous quarter and an increase of 119% from $1,614 million in the same quarter last year.
  • Gross margin was $1,046 million, or 30% of net revenue. This compares with gross margin of $941 million, or 53% of net revenue in the prior quarter, and gross margin of $846 million, or 52% of net revenue in the same quarter last year.
  • Operating expenses were $2,047 million. This compares with $466 million in the prior quarter and $428 million for the same quarter last year.
  • Operating loss was $1,001 million, or 28% of net revenue. This compares with operating income of $475 million, or 27% of net revenue, in the prior quarter, and $418 million, or 26% of net revenue, in the same quarter last year.
  • Net loss, which includes the impact of discontinued operations, was $1,255 million, or $3.02 per diluted share. This compares with net income of $377 million, or $1.30 per diluted share, for the prior quarter, and $344 million, or $1.21 per diluted share in the same quarter last year. 
  • Net loss attributable to ordinary shares was $1,186 million. Net loss attributable to noncontrolling interest (restricted exchangeable limited partnership units (REUs) in the company’s subsidiary, Broadcom Cayman L.P. was $69 million.
  • The company’s cash balance at the end of the second fiscal quarter was $2,041 million, compared to $2,169 million at the end of the prior quarter.
  • The company generated $622 million in cash from operations and spent $158 million on capital expenditures in the second fiscal quarter of 2016. During the quarter, the company repaid $565 million of its outstanding term loans.
  • On March 31, 2016, the company paid a cash dividend of $0.49 per ordinary share, totaling $193 million. On the same date, the Partnership, of which the company is the General Partner, paid holders of REUs a corresponding distribution of $0.49 per REU, totaling $11 million.

Second Quarter Fiscal Year 2016 Non-GAAP Results From Continuing Operations

  • Net revenue from continuing operations was $3,562 million, an increase of 100% from $1,782 million in the previous quarter, and an increase of 117% from $1,645 million in the same quarter last year.
  • Gross margin from continuing operations was $2,138 million, or 60% of net revenue. This compares with gross margin of $1,089 million, or 61% of net revenue, in the prior quarter, and gross margin of $998 million, or 61% of net revenue, in the same quarter last year.
  • Operating income from continuing operations was $1,329 million, or 37% of net revenue. This compares with operating income from continuing operations of $783 million, or 44% of net revenue, in the prior quarter, and $701 million, or 43% of net revenue, in the same quarter last year.
  • Net income from continuing operations was $1,120 million, or $2.53 per diluted share. This compares with net income of $710 million, or $2.41 per diluted share last quarter, and net income of $620 million, or $2.13 per diluted share, in the same quarter last year.

We delivered solid second quarter revenue, while exceeding EPS expectations for our first quarter operating as a combined company. Our increased scale and diversity is already proving very resilient, with strong product cycles in our now largest segment, wired, offsetting weaker demand in our enterprise storage and wireless segments,” said Hock Tan, president and CEO, Broadcom Limited. “We are expecting a robust third quarter, led by strong growth in wireless revenue, and continued strength in wired networking, and remain confident in our ability to leverage earnings growth as we work towards full integration and achievement of our operating model.

Third Quarter Fiscal Year 2016 Business Outlook 
Non-GAAP net revenue of $3,750 milion (this non-GAAP net revenue includes $10 million of licensing revenue not included in GAAP revenue, as a result of the effects of purchase accounting for acquisitions)

Comments

Revenue of enterprise storage only
(in $ million)

  Revenue  % of total revenue Q/Q growth Y/Y growth
2Q15 467 28%    
1Q16 678 38% 6% 40%
2Q16 525 15% -23% 12%

Abstracts of the earnings call transcript:

Hock Tan, president and CEO:
"In the second quarter, enterprise storage revenue came in at $525 million down 23% sequentially, enterprise storage represented 15% of total revenue, this segment experienced a sequential decline in revenue driven by large drop in hard disk drive, unit TAM and seasonal weakness in the enterprise server storage connectivity market.
"Looking to the third quarter lastly due to further hard disk drive unit TAM declines, we expect enterprise storage revenue to decline in the low single digits sequentially. We currently project the third quarter to be the trough for enterprise storage revenue this fiscal year. Regardless of fluctuations in unit TAM, we also expect to continue to gain share in our hard disk drive business."

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