Broadcom’s dramatic guidance forecast chills chipmakers

Broadcom HQ
Chipmakers' stocks fell dramatically following Broadcom's forecast. (Coolcaesar/CC)

Chipmakers will be on alert this week after their stocks fell dramatically on Friday following Broadcom’s forecast of a $2 billion revenue hit over economic and political uncertainty around U.S.-China trade tensions and the Huawei export ban.

“Our customers are actively reducing inventory levels to manage risks,” CEO Hoc Tan told investors late Thursday, according to a Seeking Alpha Transcript.

He predicted Broadcom revenues would decline in the high single digits to about $17.5 billion for the current fiscal year.

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Shares for the company then dropped 10% early Friday.  Other U.S. chipmakers such as Intel and Qualcomm saw declines of up to 4%.

Broadcom’s forecast was one of the clearest examples thus far of the way chipmakers will react to actions by President Donald Trump and administration officials toward China and Huawei. Also last week, more than 600 U.S. companies from manufacturing, tech, retail and agriculture urged Trump in a letter to resolve the trade dispute with China, saying that tariffs hurt their businesses and consumers. 

Broadcom’s Tan tempered the company’s negative forecast by remaining positive about products such a new Trident 4 software defined network switch for enterprises and other next-generation switching and routing for enterprises.  The company is “confident that we will be able to continue to drive sustained long-term revenue growth and increasing free cash flow,” Tan said in the earnings call.

Perhaps Broadcom was being overly cautious in its forecast, one analyst said. “I think they are being cautious, which is the right thing for a public company to do, but I’m not sure things are as disastrous for Broadcom as they say,” said Jack Gold, an analyst at J. Gold Associates.

Still, it is hard for chipmakers to know what they can do to plan ahead of trade negotiations between China and the U.S.  They can seek other customers than Huawei and diversify their products and the markets they sell into or send letters to President Trump asking for action, but much of their fate will be out of their hands, analysts said.   

“The best thing that could happen for all these chip guys is for China and the U.S. to get some trade agreement in place, but both sides are taking these maximalist positions,” Gold said. 

“The current U.S. administration is so difficult to predict,” added Roger Entner, an analyst for ReCon Analytics.  “It’s anything but consistent.”

In one sense, products like the Trident 4 from Broadcom and other non-smartphone components will be the company’s “saving grace,” Entner added.  That’s because such products don’t necessarily rely on sales in China. 

China is already on a pathway to reach a 2025 goal of becoming fully independent of western technology, Entner noted.  “The trade dispute is just accelerating that work,” he said.  One example is that Huawei is already working on its own smartphone OS, he added.

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