April 26 (Bloomberg) — Broadcom Corp., the biggest maker of chips for television set-top boxes, forecast second-quarter revenue that missed analysts' estimates as customers such as Nokia Oyj and Samsung Electronics Co. struggle to boost sales.
Revenue in the current period will be $1.75 billion to $1.85 billion, Broadcom said today in a statement. That compared with the average analyst estimate of $1.89 billion, according to a Bloomberg survey. A year earlier, sales were $1.6 billion. The company's wireless and consumer-electronics customers are facing steeper competition, with Nokia and Samsung each reporting lower profit in the recent quarter. Some of Broadcom's TV-systems clients were also affected by the March 11 earthquake and tsunami in Japan, said Doug Freedman, an analyst at Gleacher& Co. "This company has had a lot of issues crop up," said Freedman, who rates Broadcom shares"buy.""Some of their smartphone customers — Samsung and Nokia — didn't have great quarters." Broadcom shares slipped as low as $36.55 in extended trading. Before the earnings report, the stock gained 25 cents to $40.41 at 4 p.m. New York time on the Nasdaq Stock Market. The shares have declined 7.2 percent this year. On a conference call, Chief Executive Officer Scott McGregor cited a slowdown in sales to cell-phone makers for the forecast, though he said Irvine, California-based Broadcom is holding or gaining market share. "We have strong design-win momentum," McGregor said on the call."We believe this momentum is building for us going forward." First Quarter Sales in the first quarter rose 24 percent to $1.82 billion, compared with analysts' average estimate of $1.81 billion. Net income increased to $228 million, or 40 cents a share, from $210 million, or 40 cents, a year earlier, Broadcom said. The company's gross margin — the percentage of sales left after subtracting production costs — was 51 percent in the first quarter, in line with analysts' estimates. "The quarter was fine, but the guidance was light," Stacy A. Rasgon, an analyst at Sanford C. Bernstein& Co. who has a"market perform" rating on the stock, said in an interview."This is a stock investors are buying because they want revenue growth. I don't know if this is a one-quarter blip or a longer- term story." Challenges The forecast may fuel concerns about emerging challenges to Broadcom's business. Analysts say rival Qualcomm Inc. may move in on Broadcom's orders following its acquisition of Atheros Communications Inc., announced in January. Atheros makes competing chips that enable Wi-Fi and Bluetooth connections. "Broadcom's biggest growth driver has been their wireless segment, and Qualcomm buying Atheros poses a threat to that business," said Srini Pajjuri, an analyst at Credit Agricole Securities USA Inc. who rates the shares"underperform." In February, Nokia struck a deal to incorporate Microsoft Corp.'s Windows Phone software in its future handsets. The agreement may give Qualcomm, a big supplier of chips for Windows-based phones, a leg up. On the call, McGregor said Nokia's deal with Microsoft represents an opportunity for Broadcom to supply Nokia with chips for higher-end smartphones. He said the company provides chips for Nokia's lower-end devices, which it will continue to sell. Since last month's disaster in Japan, Broadcom hasn't had trouble getting components, though some TV set-top box customers have, McGregor said. That could lead to some disruptions, he said.–Editors: Jillian Ward, Nick Turner
To contact the reporter on this story: Olga Kharif in Portland, Oregon, at okharif@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
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