Leading semiconductor provider for wired and wireless communications Broadcom (NASDAQ:BRCM) reported a stronger than expected Q3 2015, with revenue coming in above the mid-point of its guided range and ahead of analyst expectations. Much of the growth in the quarter was driven by the company’s strong performance in Broadband and Connectivity solutions, as the Infrastructure and Networking business remained weak. As we pointed out in our pre-earnings article, despite short-term weakness, we expect Broadcom to continue to grow in the future, driven by product cycles and new launches from key customers.
In light of Broadcom’s pending transaction with Avago, Broadcom did not conduct a conference call with analysts and investors. The acquisition by Avago will make the combined entity (to be known as Broadcom) the third largest U.S. semiconductor supplier, behind Intel (NASDAQ:INTC) and Qualcomm (NASDAQ:QCOM), and the sixth largest in the world according to final annual semiconductor market shares. (Read: Broadcom To Be Acquired By Avago In Record Tech Deal)
Quick Snapshot of the Q3 2015 Earnings
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At $2.19 billion, Broadcom’s Q3 2015 revenue declined 3.2% year-on-year but increased 4.3% compared to Q2 2015. While Broadband and Connectivity revenue increased 2% year-on-year and 8% quarter-on-quarter, the company’s Infrastructure and Networking revenue declined 1% year on year and 4% quarter on quarter. Broadcom’s GAAP and non-GAAP income improved to $429 million and $477 million, compared to $98 million and $461 million in Q3 2014, respectively. GAAP and non-GAAP diluted earnings per share (EPS) for Q3 2015 stood at $0.69 and $0.77, respectively. 
Our price estimate of $46 for Broadcom is at an approximate 10% discount to the current market price. We are in the process of updating our model for the Q3 2015 earnings release.
Pending Acquisition By Avago Will Make Broadcom A Stronger Entity
Broadcom and Avago Technologies entered into a definitive agreement May this year, where the latter will acquire the former in a cash and stock transaction that is structured such that the combined company will have an enterprise value of $77 billion. Under the terms of the definitive agreement, Avago will acquire Broadcom for $17 billion in cash consideration and the economic equivalent of approximately 140 million Avago ordinary shares, valued at close to $20 billion. The transaction is expected to close by the end of the first calendar quarter of 2016 and is subject to regulatory approvals in various jurisdictions.
Avago Limited is a leading designer, developer and global supplier of a broad range of analog semiconductor devices, with an extensive portfolio in four key markets: wireless communications, enterprise storage, wired infrastructure, and industrial and other. Broadcom is a global leader and innovator in digital CMOS semiconductor solutions for wired and wireless communications. The company is best known for its connectivity chips, which are used widely in smartphones made by Apple (NASDAQ:AAPL) and Samsung Electronics (OTC:SSNLF) and wireless connectivity devices.
The combination of Avago and Broadcom will create a global diversified leader in wired and wireless communication semiconductors. The transaction brings together Avago’s offering of analog devices for Wireless and Optical applications and Broadcom’s great strengths in digital Ethernet, cable and Wireless connectivity products. As such there is notably little overlap in their respective product offerings, though they to a degree serve shared markets. There are thus synergies to be had in sales and marketing, as well as operations.Notes: