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Broadcom hit by friendly-fire in US/China trade war

Broadcom

Broadcom has unveiled its financial results for the last three months, though it isn’t the rosy picture some might have hoped for as ‘continued geopolitical uncertainties’ weigh heavy on the spreadsheets.

Although total revenues were up 10% from the same period of 2018 to $5.5 billion, the team has lowered its forecast for the remainder of the financial year. The new forecast for 2019 is now $22.5 billion, $2 billion lighter than the team was initially aiming for.

“We currently see a broad-based slowdown in the demand environment, which we believe is driven by continued geopolitical uncertainties, as well as the effects of export restrictions on one of our largest customers,” said CEO Hock Tan.

“As a result, our customers are actively reducing their inventory levels, and we are taking a conservative stance for the rest of the year.”

Although not mentioned here, guessing who Tan is referring to is not the most taxing of tasks. While Broadcom does not have as much exposure to Huawei as some US firms, it is its biggest customer; the unintended consequences (or at least we hope they were unintended) of President Trump’s Executive Order continue to pile up.

Estimates might vary, though the general consensus is that Huawei, the world’s largest manufacturer of telecoms equipment, purchases around $20 billion of semiconductors each year. Broadcom is being impacted here, though Qualcomm, Intel, Xilinx and several other smaller firms will also be feeling the pinch.

Although the year-on-year stats are still encouraging, investors might be a bit turned off by the sequential 4.7% decrease in revenues. Net income stood at $691 million, though this is not comparable to the year as this was the period Broadcom realised the benefits of changes to tax laws in the US.

The last couple of years have certainly been an interesting saga for Broadcom. Having shifted its HQ to the US in an effort to buy favour with authorities while attempting to acquire Qualcomm, the transaction was eventually blocked by the White House on the grounds of national security. With financials now being hit because of the anti-China mission of the Oval Office, Tan must be wondering why he bothered to cosy up with the US.


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