With Qualcomm behind it, Broadcom looks to smaller deals

[BENGALURU] Broadcom's on Thursday said it was likely to pursue smaller acquisitions of chipmakers after its failed hostile takeover bid to acquire rival Qualcomm Inc and said that its smart phone chip business would see a drop in demand this quarter from a North American customer and an increase from South Korea.

Most analysts believe that the North American customer is Apple Inc, which made up a fifth of Broadcom revenue last year, and the Korean customer is Samsung Electronics, which is ramping up production of its recently announced Galaxy S9 smart phone.

Broadcom results beat expectations days after US President Donald Trump blocked its US$117 billion hostile bid for Qualcomm on national security concerns. The company scrapped the offer on Wednesday.

Singapore-based Broadcom, however, said it would continue with its plans to redomicile to the United States, fueling expectations that the company would likely scout for smaller targets.

"Qualcomm was clearly a unique and very large acquisition opportunity," chief financial officer Tom Krause told investors on a conference call. "Given the maturity of the industry, the consolidation it is seeing and our relative size now, our future acquisitions are much more likely to be funded with cash available on our balance sheet and without the need to flex the balance sheet."

Broadcom's shares were down 1.2 per cent at US$264.50 in extended trading on Thursday.

"Typically, Broadcom has to make acquisitions to drive the earnings," said Summit Insight Group analyst Kinngai Chan. "If the company is able to make two or three medium-size acquisitions, then I think the stock will move up again." But Broadcom officials were still publicly smarting over the loss of the Qualcomm deal.

Mr Krause said he was "touched" by an Institutional Shareholder Services report Wednesday encouraging Qualcomm shareholders to cast protest ballots for Broadcom's director nominees.

Mr Krause said Broadcom believes that "based on the vote tally as of today, the 11 Qualcomm nominees are only garnering between 15 per cent to 16 per cent of the outstanding shares, not necessarily something to celebrate on San Diego."

Qualcomm declined to comment on Mr Krause's comments.

Broadcom, whose WiFi chips are found in Apple Inc's iPhone and most Android phones, was eyeing Qualcomm's core baseband chips and license business that would significantly benefit from the rollout of 5G wireless technology.

Broadcom said first-quarter smart phone results were driven by an increase in orders from a "North American smartphone customer," which most analysts believe is Apple Inc, which released its flagship iPhone X later than normal last year, pushing production into the early part of this year.

CEO Hock Tan said that customer's business was expected to"trend down sharply" in the second quarter, partially offset at Broadcom by more business for a "next-generation flagship from a large Korean smartphone customer."

Net income attributable to ordinary shares surged to US$6.23 billion, or US$14.62 per share, in the first quarter ended Feb 4, from US$239 million, or 57 cents per share, a year earlier.

The company, which announced a quarterly interim dividend of US$1.75 per share, said it recorded a gain of US$5.79 billion due to the recently enacted US tax law.

Excluding items, the company earned US$5.12 per share.

Net revenue rose to US$5.33 billion from US$4.14 billion.

Analysts on average had expected earnings of US$5.05 per share and revenue of US$5.32 billion.

REUTERS