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Broadcom's chips for data centres offset smartphone weakness

Broadcom's attempt to acquire rival Qualcomm Inc, which would have been the biggest acquisition in the history of the technology industry, was blocked by the US government on security grounds.

San Francisco

BROADCOM Inc reaffirmed its revenue forecast for the current period and reported profit that beat estimates, indicating robust sales of chips used in data centres networks are helping to make up for lacklustre demand in the smartphone business.

Revenue will be about US$5.05 billion, plus or minus US$75 million, in the quarter ending in July, the San Jose-based chipmaker said on Thursday in a statement. Analysts had projected sales of US$5.06 billion, according to the average of estimates compiled by Bloomberg.

Broadcom chief executive officer Hock Tan has almost tripled the company's revenue since 2015, mostly through acquisitions. On Thursday, he returned to discussing fluctuations of the electronics market after a failed attempt to expand further through the acquisition of Qualcomm Inc. As more companies use data to fuel their businesses, Broadcom's strength in chips that help run corporate networks and data centres is keeping orders rolling in.

"Our overall business remains robust and stable," Mr Tan said. In the current period, the company is expecting wireless revenue to be unchanged or "maybe even decline" while growth in wired infrastructure sales will continue, he added.

Companies and large cloud data centre providers are spending on infrastructure, Mr Tan said. In wireless, the company's large North American smartphone customer - which analysts take as a reference to Apple Inc - sharply cut orders in the reported quarter, he said, adding that those orders will improve in the current period as that customer transitions to a new product and falls back into what would be a normal seasonal purchasing pattern.

Growth won't return to wireless because Broadcom is expecting orders from a large Korean customer to tail off, he said. While he did not name the customer, that description is usually the way Mr Tan refers to Samsung Electronics Co.

Broadcom's net income was US$3.73 billion, or US$8.33 a share, in the quarter ended April 30, compared with US$464 million, or US$1.05 a share, a year earlier. Revenue rose 20 per cent to US$5.01 billion. Profit minus certain items was US$4.88 a share. That compares with an average analyst estimate of US$4.68 per share on sales of US$5 billion.

The company had updated its predictions on April 30 to indicate sales of about US$5 billion for the fiscal second quarter and projected US$5.05 billion, plus or minus US$75 million, for the current quarter.

Broadcom released its forecasts at that time to reassure investors that its customers are in a diverse enough set of markets that the company would not be vulnerable to weak sales in its wireless division. Apple is one of the company's largest customers.

Shares were little changed in extended trading after results were released. Earlier, they closed at US$264.68, leaving them up 3 per cent this year. That compares with a 14 per cent gain for the Philadelphia Stock Exchange Semiconductor Index. Broadcom's stock has outpaced the chip industry benchmark in four of the last five years.

Mr Tan and his management have said that they don't expect future acquisitions to weigh heavily on the company's balance sheet, which suggests they don't plan to pull off more large-scale deals. Their hostile attempt to acquire rival Qualcomm Inc, which would have been the biggest acquisition in the history of the technology industry, was blocked by the US government on security grounds.

The company has not abandoned the idea of future purchases and won't settle for ploughing cash into stock repurchases. Broadcom is still looking for acquisition targets, Mr Tan said. "Our cash flow generation is very, very strong," he said. "That's allowing a lot of flexibility to look at M&A as we do and to invest in a very strong returning asset, our own shares." BLOOMBERG

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