Broadcom (AVGO) Extends Its Rally On Sustained Demand Trends In Q4 And Upbeat Q1 Guidance

2:53 pm Friday, December 09th, 2022

Broadcom (AVGO) is adding to its ongoing rally today after delivering its fourth-straight double-digit earnings beat and third-straight quarter of 20+% revenue growth, highlighting sustained demand in Q4 (Oct). Meanwhile, the chipmaker, whose major customers include Apple (AAPL) and Cisco (CSCO), guided Q1 (Jan) revs nicely above consensus. AVGO also hiked its dividend by 12%, translating to a new annual yield of 3.5% from 3.1%, and expects to resume its $13 bln repurchase program as soon as it can under SEC rules.

There was a bit of caution sprinkled into the otherwise upbeat Q4 report. Although CEO Hock Tan believes AVGO is not shipping beyond actual demand, supplying customers who can consume the product immediately, he was cautiously optimistic about these trends extending through FY23. Mr. Tan commented that the sustained strength in consumption of AVGO’s products in FY23 is unknown. Still, the company has yet to see some of its largest enterprise customers talking about reducing IT spending.

AVGO’s Q4 numbers did not show a reversal of these solid demand trends. Adjusted earnings expanded by 33.8% yr/yr to a record $10.45 while sales of $8.93 bln, representing 20.6% growth, also set a record.

Growth was broad-based, with strong showings from hyperscalers, service providers, and enterprises. Networking revs jumped 30% yr/yr to $2.5 bln, storage connectivity surged 50% to $1.2 bln, and broadband grew 20% to $1.0 bln. Although much lighter than AVGO’s other businesses, wireless revs climbing 13% to $2.1 bln was a notable standout given the weakening consumer demand environment touched on by many of AVGO’s peers lately.

AVGO’s Q4 report was mostly uplifting, with lingering concerns surrounding AAPL and the demand backdrop in FY23 keeping shares somewhat in check. Also, AVGO’s $61 bln VMware (VMW) deal continues to hang over the stock as many regulatory obstacles still need to be hurdled. However, there should be less uncertainty after the EU decision deadline on December 20; AVGO remains confident in the deal closing during FY23. Still, Q4 numbers underpin sustained demand trends, with Q1 continuing this momentum. It is also encouraging to see AVGO lift its dividend and resume its $13 bln share repurchase program.