January 18, 2022

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What Investors Can Learn from Chip Giant Broadcom

Broadcom AVGO reported its Q1 fiscal 2020 financial results after the closing bell Thursday, alongside Adobe ADBE and Oracle ORCL. The semiconductor firm painted a picture of continued coronavirus uncertainty, as the market tumbled and the Dow dropped 10%, for its worst day since 1987.

AVGO’s adjusted Q1 EPS of $5.25 a share topped our Zacks estimate, while revenue fell short. More importantly, however, the chipmaker pulled its fiscal 2020 financial projections, due to the coronavirus. “We did not see any material impact on our businesses due to COVID-19 in our first quarter,” CEO Hock Tan said.

“However, visibility in our global markets is lacking and demand uncertainty is intensifying. As a result, we believe it prudent to withdraw our annual guidance until visibility returns to pre COVID-19 levels.”

The Apple AAPL supplier did provide Q2 sales guidance of $5.7 billion “plus or minus $150 million.” Investors should note that Broadcom’s guidance missed our $5.91 billion estimate, which would have marked 7% growth. On top of that, Broadcom’s consensus earnings estimates have now slipped for Q2, fiscal 2020, and fiscal 2021.

AVGO, which is currently a Zacks Rank #3 (Hold), is down over 35% from mid-February’s $325 to around $203 a share Friday morning. Looking ahead, Broadcom’s lack of guidance, based on coronavirus uncertainty, might become the near-term norm.

But stocks did show signs of life in morning trading Friday, after all three major U.S. indexes plummeted over 9% Thursday. With the 11-year bull run now over, investors should expect continued volatility, but the lightning-quick decline has put a ton of stocks in a territory where long-term investors might want to consider buying.

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