Fabless chip and software maker Broadcom (NASDAQ:AVGO) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue up 15.7% year on year to $8.92 billion. Guidance for next quarter's revenue was $8.7 billion at the midpoint, which is 1.18% above the analyst consensus. Broadcom made a GAAP profit of $3.77 billion, improving on its profit of $2.47 billion, in the same quarter last year.
Is now the time to buy Broadcom? Access our full analysis of the earnings results here, it's free.
Broadcom (AVGO) Q1 FY2023 Highlights:
- Revenue: $8.92 billion vs analyst estimates of $8.9 billion (small beat)
- EPS (non-GAAP): $10.33 vs analyst estimates of $10.16 (1.65% beat)
- Revenue guidance for Q2 2023 is $8.7 billion at the midpoint, above analyst estimates of $8.6 billion
- Free cash flow of $3.93 billion, down 11.8% from previous quarter
- Inventory Days Outstanding: 59, down from 76 previous quarter
- Gross Margin (GAAP): 67.3%, down from 75% same quarter last year
"Broadcom's first quarter performance reflects continued strength in infrastructure demand across all our end markets," said Hock Tan, President and CEO of
Originally the semiconductor division of Hewlett Packard, Broadcom (NASDAQ:AVGO) is a semiconductor conglomerate that spans wireless, networking, data storage, and industrial end markets along with an infrastructure software business focused on mainframes and cybersecurity.
The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.
Sales Growth
Broadcom's revenue growth over the last three years has been mediocre, averaging 15.1% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $7.71 billion to $8.92 billion. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
This was an OK quarter for Broadcom with revenues growing 15.7%, ahead of analyst estimates by 0.22%.
Broadcom believes the growth is set to continue, and is guiding for revenue to grow 7.37% YoY next quarter, and Wall St analysts are estimating growth 2.81% over the next twelve months.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.
Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.
This quarter, Broadcom’s inventory days came in at 59, 2 days below the five year average, showing no indication of an excessive inventory buildup at the moment.
Key Takeaways from Broadcom's Q1 Results
Sporting a market capitalization of $247 billion, more than $12.6 billion in cash and with positive free cash flow over the last twelve months, we're confident that Broadcom has the resources it needs to pursue a high growth business strategy.
We were very impressed by the strong improvements in Broadcom’s inventory levels. And we were also glad to see that earnings outperformed analysts' expectations. On the other hand, it was less good to see the pretty significant deterioration in gross margin and the revenue growth was quite weak. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is up 1.42% on the results and currently trades at $608 per share.
Should you invest in Broadcom right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.
The author has no position in any of the stocks mentioned.