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Broadcom has 2Q loss on revenue slip

Broad loss * Broadcom's revenue dropped 14 percent to US$210.9 million in the second quarter from US$245.2 million in the first. * The company had a US$436.4 million loss in the second quarter on acquisition-related expenses. * Sales were little changed in the second quarter.

Broadcom Corp, the largest maker of chips for cable modems, had a US$436.4 million loss in the second quarter on acquisition-related expenses and a 14 percent decline in revenue. Third-quarter sales will be little changed from the previous period, Broadcom said.

The loss was US$1.73 a share, compared with net income of US$55.9 million, or US$0.22 a share, the company said in a statement. Revenue dropped to US$210.9 million from US$245.2 million.

Broadcom faces a possible loss and lower revenue this year as customers such as Cisco Systems Inc deplete their inventory and demand for telecommunications equipment falls. Business still may pick up, partly on demand for new chips for cable television set-top boxes, Chief Executive Henry Nicholas said. Broadcom shares rose as much as 8.3 percent in after-hours trading.

"There's still going to be risk for the next two quarters," said Venu Reddy, an analyst at Waddell & Reed Financial Inc, which sold most of its Broadcom stake last quarter. "This is a bad environment. They don't know anything [about] what the macro-economy is going to do."

Irvine, California-based Broadcom, which last year reached US$1 billion in annual sales faster than any US chipmaker, also makes semiconductors for computer-network switches and digital cable-TV set-top boxes.

Broadcom shares fell US$3.27 to US$39 and rose as high as US$41.30 in after-hours trading following the report. They had declined 54 percent this year.

Excluding charges, acquisition-related costs and other items, Broadcom's loss was US$0.16 a share, in line with a reduced forecast. On that basis, the numbers aren't in accordance with generally accepted accounting principles.

On a conference call today, chief financial officer William Ruehle said third-quarter revenue will be "approximately flat" compared with the second quarter. Operating expenses will be "down slightly," resulting in a loss, before charges and acquisition expenses, that's "equal to or slightly better than" the second quarter's US$0.16 a share, Ruehle said.

Revenue may begin to rebound by year-end, Ruehle said, though he declined to offer a specific financial prediction for the fourth quarter.

Waddell's Reddy said he's also skeptical of the third-quarter target because Broadcom doesn't "have any visibility" into its networking-chip business, which he estimated at 40 percent of revenue, and because Motorola Inc, Broadcom's top customer, expects third-quarter sales of cable set-top boxes using Broadcom chips to decline.

A brokerage analyst, WR Hambrecht & Co's Jim Liang, said he upgraded Broadcom shares to a "buy" from "neutral" last week on the assumption that sales will begin to recover in the fourth quarter. He also upgraded rival Vitesse Semiconductor Corp and chipmaker Altera Corp to "strong buy" from "buy." He said he believes sales will rebound because chip inventories have mostly been depleted and the US economy will begin to recover in the fourth quarter.

Ruehle said on the call that the company will "generate operating profit" when quarterly revenue exceeds US$300 million. In an interview, he elaborated: Broadcom is willing to take the risk of losing money in hope that spending on product development will pay off with higher sales later, Ruehle said.

Motorola, the biggest maker of cable modems and digital cable set-top boxes, was the largest customer, accounting for 14 percent of sales, Ruehle said. That's down from 18.6 percent in the first quarter.

On June 6, Nicholas said second-quarter revenue would fall 32 percent to 35 percent from the first quarter's US$318.1 million, implying a range of US$207 million to US$216 million. In April, he forecast a decline of 20 percent to 23 percent.

Analysts polled by First Call/Thomson Financial forecast a third-quarter loss, on average, of US$0.14 a share. Estimates ranged from a loss of US$0.09 to US$0.20 a share.

Broadcom eliminated more than 200 jobs during the quarter to "remove redundancies throughout the company," Nicholas said in a statement. That's more than 7.2 percent of the workforce of 2,797 as of March 31. Nicholas previously said Broadcom would cut jobs, though he hadn't disclosed how many.
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