Broadcom reports record Q3 revs, looks to control costs
Broadcom has "throttled back headcount growth quite significantly" in an effort to control costs.
By Suzanne Deffree, Managing Editor, News -- EDN, October 22, 2008
Tremendous Q3 revenue and income gains set Broadcom Corp apart from the pack this week, with analysts cheering the company despite its guidance for a down Q4.
The Irvine, Calif-based connectivity company reported Q3 revenue at just less than $1.3 billion, a 8.1% increase on Q2 and a 36.7% increase year over year. September quarter income of $164.9 million compared with income of $134.8 million in Q2 and income of $27.8 million in Q3 2007.
"I think a lot of companies have been weakened all across the year by the economic crisis and I think at Broadcom you’ve seen that we’re probably in a stronger financial place than we’ve ever been as we exit Q3," Eric K Brandt, Broadcom's CFO, said on the company's call with financial analysts Tuesday afternoon. "I think we enter this difficult time probably stronger than most. We understand our fiduciary responsibility and I think if things got worse or substantially worse, we would take the appropriate actions to move our cost structure more in line with the business."
Those actions will include reductions to hiring, the company's executives said.
"While we continue to believe that we are a product driven company, as you can see in our Q4 guidance we are not entirely immune from the current issues present in the economy," Scott McGregor, Broadcom's president and CEO, said on the call. "Because of that we started taking steps last quarter to control our costs. We have limited our headcount additions in most areas to replacements of departing employees, and we have begun a variety of other cost saving measures."
Brandt added that although Broadcom has not stopped adding employees, it has "throttled back headcount growth quite significantly" and is focused filling open positions and minimal ads to positions with high ROI (return on investment).
"Due to strong expense control combined with better than anticipated revenue performance year-to-date, we are continuing to see solid leverage in the R&D line. We increased totally company headcount in Q3 by 167 people to a worldwide total of 6,853 people," he said.
Q4 down, but analysts still happy
Broadcom guided for Q4 revenue of $1.17 billion to $1.235 billion, down 5 to 10% on its Q3 results. However, the lower guidance did not discourage financial analysts from viewing Broadcom's market placement as positive.
"This is slightly worse than whispers, but not the disaster some may have feared," Mark McKechnie, American Technology Research's data networking and storage components analyst, said in a research note this morning. "The company expects broadband to grow sequentially, but sees networking and wireless down. Broadcom indicated normal 80% bookings visibility entering December, in-line with eight to 12 week lead times, but no read yet on March. We read the weak December sequential performance as a fall-off from pre-holiday builds following Broadcom's customer forecast revisions."
Separately, FBR Research raised its estimates for Broadcom from $28 to $29 on the Q3 report.
"Management's navigation of this downturn thus far has been impressive," Craig Berger of FBR Research said in a research note today. "Indeed, our Q4 and 2009 EPS estimates are actually increasing versus our prior estimates, as Broadcom does not have the burden of lower fab utilizations weighing down margins. Stepping back, Broadcom is one of the firms in our coverage best positioned to benefit from these difficult macro times by being able to buy weaker competitors, accelerate product development efforts, or buy back meaningful amounts of stock."
As of 1:03pm eastern this afternoon, BRCM was trading at $15.62, up more than 13% from its Tuesday close of $13.80.
