Broadcom Decreases Its Sales Projection
Broadcom Corp., which already has warned that it expects to lose money in the current quarter, said Wednesday that sales probably will decline even further than anticipated because of weak demand for its communications chips.
The Irvine company expects second-quarter revenue to fall 32% to 35% below first-quarter revenue, which also was disappointing. The company earlier said it anticipated revenue falling 23% from first-quarter revenue of $318.1 million, which was far below analysts’ expectations.
The firm expects to take a second-quarter charge from cost-cutting moves, including an unspecified number of job cuts, said Chief Executive Henry T. Nicholas III.
Broadcom also plans to realign business units and close some offices, he said in a press release issued after the close of regular and after-hours trading. The company plans to discuss its plans this morning in a conference call with analysts.
Since the planned job cuts were announced more than two months ago, Broadcom employees have nervously awaited word of their fates. Workers said Wednesday that they had not received word of any layoffs.
The stakes are high.
Shareholders approved a plan late last month to enable employees to trade in their stock options, which have lost their value as Broadcom’s share price tumbled in recent months, for new options that will probably be priced lower. But the opportunity will be available only for employees who remain with Broadcom.
Nicholas and Broadcom co-founder Henry Samueli, the company’s chief engineer, have been scrutinizing each technology unit at the 2,700-person firm. Broadcom acquired a dozen companies last year and one more in January, more than tripling the company’s work force. Broadcom had 2,706 employees at the end of March, including 945 in Orange County.
As the once-booming technology market has ground nearly to a halt, Broadcom’s stock price has fallen off sharply.
Broadcom stock lost $1.99 a share Wednesday, closing at $35.57 in Nasdaq trading.
The company’s latest cut in its sales estimates would place second-quarter revenue somewhere between $206.7 million and $216 million. Analysts were anticipating revenue of $254.7 million, according to a survey by First Call/Thomson Financial.
The company was projecting a loss of 7 cents to 9 cents a share for the quarter before the latest sales forecast.
Analysts said they were surprised by the extent to which Broadcom slashed expectations on Wednesday.
“I thought 23% was big,” said Mike Paxton, an analyst for the research firm Cahners In-Stat Group, referring to the previously forecast drop in earnings. “Maybe Broadcom is losing market share to some competitors.”
In particular, Paxton said, Broadcom rivals Texas Instruments Inc. and Conexant Systems Inc. have made recent headway in the market for cable modems, where Broadcom is the longtime market leader.
In a company statement Wednesday, Nicholas indicated signs of recovery.
“Although current demand conditions continue to be soft, we are starting to see some signs of stabilization in the business for the second half of the year,” he said.
But some analysts were less optimistic. “I don’t think Broadcom is really looking for a pickup until early next year,” said Charles Glavin, analyst for Credit Suisse First Boston, who has a “hold” rating on the stock.
Glavin predicts a price war that could slash prices for some of the fastest networking chips that Broadcom produces.
