Broadcom stock slumped 4% Friday, one day after the company reported demand for its semiconductors has hit bottom and will stay there because of global market challenges that include uncertainty over U.S. trade with China and a ban on sales to Huawei.
“Looking at the semiconductor solutions segment, we believe demand has bottomed out but will continue to remain at these levels due to the current uncertain environment,” CEO Hock Tan said in a statement on Thursday.
Revenues for the third fiscal quarter were sustained with robust cash flow “despite a challenging market backdrop,” he added. After the comments, Broadcom’s stock saw a 4.4% decline at 10:30 ET a.m. Friday, putting the price at $287.14.
Revenues in the third fiscal quarter were $5.5 billion, up 9% for the same quarter in 2018. Free cash flow generated in the quarter was $2.3 billion, up 8%. Net income was $715 million.
In a conference call, Tan said Broadcom expects to continue to operate “in a very low-growth, uncertain macro environment for the foreseeable future.” Later, in response to a question from an analyst, Tan added according to a Motley Fool transcript:
“It is correct that the U.S.-China trade dispute is turning into an extended affair with lots of twists and turns in uncertainty. And we are assuming … conditions, environment is not going to change from what we’re seeing now. And if we made that assumption next year, you [would] probably see a very uncertain 2020.”
The company expects to achieve net revenues of $22.5 billion for the full fiscal year, which ends Nov. 3, split between $17.5 billion for semiconductors and $5 billion for infrastructure software, he said.
Industry analysts said Broadcom’s largest customer is Apple, which accounted for one-fourth of Broadcom’s revenues last year. Huawei accounted for $900 million, about 4%, last year. Huawei is blacklisted by the U.S. due to national security worries, and Broadcom cannot sell there. In all, Huawei has said it spent about $11 billion in 2018 for products made by U.S. companies, and all those sales are subject to the blacklisting. More than 130 companies are seeking a special permit from the U.S. Commerce Department to continue to sell U.S. goods to Huawei.
European regulators have opened an investigation into Broadcom, alleging anticompetitive practices in the market for chips in modems and set-top boxes. Broadcom has defended its practices and said it doesn’t expect any material impact from the investigation.
Broadcom entered a deal to buy Symantec’s enterprise security business last month for $10.7 billion.