Broadcom Earnings Call Nuggets: Normal Seasonality, Broadband Growth

On Tuesday, Broadcom Corporation (NASDAQ:BRCM) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Normal Seasonality

Romit Shah – Nomura Securities: Eric, just a question on seasonality as I look at some of the companies that have reported thus far in the third quarter and given guidance to, guiding on average anywhere from 5 to 10 points below normal seasonality, you guys are closer to what you’d consider to be normal seasonal. Is that mainly because of Mobile & Wireless?

Eric K. Brandt – EVP and CFO: Yeah, so our normal seasonality would be down 1% to 2% and I think the midpoint of our guidance is roughly down 4% or 5%. Basically, what you see is – and the Mobile & Wireless is roughly seasonal being down slightly and broadband is roughly seasonal being roughly flat. The principle deviant from seasonal would be the infrastructure group which is consistent with what a number of companies have said both about data center and enterprise as well as service providers. So, that’s really why I think we are much closer to seasonal than other people are, as our business continues to perform well and we pick up market share and broadband and in mobile and wireless.

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Romit Shah – Nomura Securities: Then, just on gross margins, flat to up in Q4. I would assume that mix is working against you. So, what are the offsets?

Eric K. Brandt – EVP and CFO: Interestingly during the quarter, in Q3, we were about 60%, 65-nanometer and about 15%, 40-nanometer. As we grow more in 40-nanometer, we’ll pick up some margin benefit as we have some more margin optimized product and so they are giving us a bit of a tailwind. Mix is a bit of headwind just related to Mobile & Wireless, but we think we’re overcoming that with some of the more cost optimized parts, which is what’s giving us the benefit of being flat to up slightly in Q4.

Broadband Growth

Harlan Sur – JPMorgan: Nice job on the quarterly execution. In Q3 the team started production in shipments of your 40-nanometer single and dual-core baseband platforms into customers like Samsung. I assume this 40-nanometer 3G baseband business probably continues to grow for the team in Q4 as you ramp into some mid-end smartphone platforms. So, I guess number one is that true? Then number two, what other sub-segments are responsible for the overall down outlook for the entire segment here in the December quarter? Is it combo connectivity that is the offset here, you obviously saw the benefits of your combo ramp with many of your customer introductions in the third quarter, but I’m just wondering if things like for example 802.11 AC rollout with some of the router-based customers are taking a slight pause here as well?

Scott A. McGregor – President and CEO: I think the biggest factors are as Eric said we see same seasonality in the business and normally our customers give us largest quarter in Q3. If you think about our connectivity business a lot of that goes through modules and so our total cycle time is longer than a lot of our competitors. So, it will typically be shipped by us in Q3, assembled into modules and delivered to customers late Q3 and into Q4. So, that tends to shift our peak a little more into Q3 than you would see from others. So, that accounts for some of the seasonality. We also have a little bit of our 2G business continuing to fall off that’s a little bit of a headwind. That’s becoming fairly small and that will essentially go to near zero next year so that will diminish really quickly. On the positive side, we have things like 5G WiFi continued penetration and a new 3G baseband coming out. So, I would say those are the puts and takes in terms of driving the overall seasonal outlook.

Harlan Sur – JPMorgan: Then Broadband was obviously good growth in the third quarter kind of flattish here in Q4 kind of more in line with the seasonal trends, still seems like demand though for eh advanced set-top boxes in the developed countries like here in the U.S. as the service providers aggressively transition their subscribers to advanced services is going well and so maybe you can just articulate what segments within Broadband are responsible for driving more of a flattish profile is it kind of the low to mid-end set-top boxes going into the emerging markets and maybe a slight pause in some of our broadband excess rollout?

Scott A. McGregor – President and CEO: I think that’s possibly true. We certainly see strong demand for the higher-end set-top boxes and for a lot of the new capabilities, a lot of higher and higher speeds on modems are helpful. Latin America is a good growth driver for us. I think one of the things that we believe is going to be challenge is that some of the modem business has taken a little bit of pause going into Q4, so I don’t see that as a long-term effect but more of a quarter fluctuations. Then there is the normal seasonality to the consumer electronics business which is now in Q3 down around $10 million which will go down to sort of mid-single digit, so that does provide a little bit of a headwind as well.

A Closer Look: Broadcom Earnings Cheat Sheet>>