Friday, March 13, 2020

Broadcom Scraps Revenue Guidance

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What’s happening: Broadcom reported its first-quarter results and withdrew its revenue guidance for 2020 citing coronavirus-related uncertainties.

What happened: The semiconductor giant saw its shares head south as it geared up to deliver its first-quarter results. Shares had already lost 11% during regular trading hours on Thursday, before Broadcom’s management starting their earnings call. The stock shed another 10% in after-hours trading, after the company joined other chipmakers to withdraw its forecast for the year amid coronavirus-related disruptions.

  • Broadcom reported first-quarter profits of $5.25 per share, down from $5.55 per share in the same quarter last year. The figure missed the consensus estimate of $5.33 per share.
  • The company’s quarterly sales grew 4% to $3.2 billion, missing expectations of $6 billion.
  • Broadcom’s semiconductor solutions segment recorded a 4% decline in sales to $4.19 billion.

Why it matters: Broadcom’s latest report reflected the slowest revenue growth the company has delivered in around five years. Also, its earnings declined for the second straight quarter. Broadcom’s sales were dependent to a large extent on Apple, the first large tech player to issue a sales warning amid the virus outbreak in China.

Broadcom's CEO Hock Tan said that coronavirus hadn’t impacted the first-quarter results, but there has been a slowdown in demand. Tan also mentioned that the virus hadn’t affected the company’s supply chain in any “meaningful” way.

The company withdrew its 2020 outlook, but issued a forecast for the second quarter, projecting revenue between $5.55 billion and $5.85 million. This was short of the consensus expectation of $5.94 billion.

The CEO further indicated that Broadcom’s semiconductor solutions unit had not witnessed a “meaningful impact” on bookings due to coronavirus, although there is a “level of uncertainty” around its prospects in the second half of fiscal 2020. Broadcom projected flat sales from the semiconductor solutions segment in the April quarter, after recording declines in four consecutive quarters.

The company announced a quarterly cash dividend of $3.25 per share.

What to watch: With Apple being a major contributor of Broadcom’s revenue, investors will look for news related to the iPhone maker’s prospects. Updates on the spread of coronavirus will continue to impact investor sentiment.

The Markets Today

     

Investors will be watching US stocks today, with the Dow suffering its worst decline since the Black Monday crash of 1987.

Context: US stocks cratered again on Thursday, triggering a ‘circuit breaker’ for the second time this week. Trading was paused during the early session to prevent stocks from going through the floor. The sharp downturn came even as another liquidity injection was made by the Federal Reserve. Investors instead chose to focus on President Trump’s announcement of a travel ban from Europe and the lack of details around a stimulus plan.

Details: After closing lower on Wednesday, the S&P 500 and Nasdaq tumbled again on Thursday to remain in bear territory. Trading in the stock market was halted for a short while just after the opening bell, with the S&P plummeting 7%. The decline on Thursday was the worst since the crash of 1987 when markets posted a 22% drop in a single day.

The Dow plunged around 10% to close at 21,201 on Thursday, while the S&P 500 fell 9.51% to 2,481. The Nasdaq 100 was down 9.43% to settle at 7,202.

The Federal Reserve announced plans to pump up to $1.5 trillion into the financial markets. The move, however, failed to provide much reassurance to traders. The markets initially cut back some losses following the announcement but plummeted again as investors looked for details of President Trump’s stimulus plan.

Shares of Delta Air Lines, American Airlines and United Airlines posted strong losses, as investors worried that the travel ban imposed on European countries would result in further deterioration of their earnings. Airline companies are already reeling under the pressure of a global slowdown in traffic due to coronavirus fears. Other travel-related stocks, including Carnival and Norwegian Cruise Line, and travel-booking sites, like Booking.com and Expedia, also nosedived on Thursday.

In economic news, US initial jobless claims fell by 4,000 to 211,000 in the latest week, while producer prices declined 0.6% in February.

In other news, WTI crude declined to $31 per barrel, while yield on the 10-year US Treasury shed 18.4 basis points to reach 0.688%.

What to watch: US stocks may recover today after the sharp slump in the previous session. US stock futures are pointing towards a higher open this morning. Investors await some positive economic reports from the country, including import prices and consumer sentiment index. US export prices, which increased 0.7% in January, are expected to decline 0.4% in February. Import prices, which were unchanged in January, are likely to fall 0.8% in February. The University of Michigan consumer sentiment index is expected to fall to a reading of 95 in March, versus February’s 101 reading.

Other Markets: Most European indices were trading higher at 9:30am GMT, with the FTSE 100, German 30 and French 40 up 3.76%, 2.69% and 3.11%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

News shaping
the markets today

     

What else to watch today

     

India’s deposit growth and foreign exchange reserves, Mexico’s industrial production, Russia’s balance of trade, China’s foreign direct investment and the US Baker Hughes crude oil rigs report.