10-QPeriod: Q2 FY2020

Broadcom Inc. Quarterly Report for Q2 Ended May 3, 2020

Filed June 12, 2020For Securities:AVGO

Summary

Broadcom Inc.'s Q2 2020 (ended May 2, 2020) filing shows a resilient performance despite the early stages of the COVID-19 pandemic. Total net revenue increased by 4% year-over-year to $5.74 billion, driven by a significant 21% surge in the Infrastructure Software segment, largely due to the acquisition of Symantec's enterprise security business. The Semiconductor Solutions segment experienced a slight 2% decline in revenue but remained Broadcom's larger business segment. The company ended the quarter with a strong cash position of $9.2 billion, reflecting effective cash flow generation and strategic debt management. Management highlighted robust demand in semiconductors supporting remote work and learning, though acknowledging ongoing supply chain challenges and uncertainty related to the pandemic. Financially, Broadcom demonstrated strong operational execution. Operating income for the quarter was $766 million, down from $970 million in the prior year, impacted by increased R&D and SG&A expenses related to recent acquisitions. Despite these investments, the company maintained a healthy gross margin of 55%. Significant debt management activities were undertaken, including issuing new notes and repaying existing debt, aimed at strengthening the balance sheet and extending maturity profiles. The outlook remains cautiously optimistic, with continued focus on navigating supply chain issues and the evolving economic landscape.

Financial Statements
Beta
Revenue$5.74B
Cost of Revenue$2.55B
Gross Profit$3.19B
R&D Expenses$1.27B
SG&A Expenses$501.00M
Operating Expenses$2.42B
Operating Income$766.00M
Interest Expense$487.00M
Net Income$563.00M
EPS (Basic)$0.12
EPS (Diluted)$0.12
Shares Outstanding (Basic)4.01B
Shares Outstanding (Diluted)4.17B

Key Highlights

  • 1Total net revenue increased by 4% to $5.74 billion compared to the prior year's quarter.
  • 2The Infrastructure Software segment saw a substantial 21% year-over-year revenue increase to $1.72 billion, primarily driven by the Symantec acquisition.
  • 3Despite a 2% revenue dip, the Semiconductor Solutions segment remained the larger business, with $4.03 billion in revenue.
  • 4Broadcom reported $5.535 billion in cash flow from operating activities for the first two fiscal quarters of 2020, a significant increase from the prior year's $4.799 billion.
  • 5The company ended the quarter with a robust cash and cash equivalents balance of $9.21 billion, up from $5.06 billion at the end of fiscal year 2019.
  • 6Interest expense increased substantially due to debt incurred for acquisitions, totaling $487 million for the quarter.
  • 7The company actively managed its debt, issuing $4.5 billion in senior unsecured notes and repurchasing $3.99 billion of existing notes during the quarter.

Frequently Asked Questions

Broadcom noted increased demand for semiconductor products supporting remote work and learning, which positively impacted the semiconductor segment. However, the company also faced supply chain challenges, including extended lead times and logistical issues due to lockdowns in Asia-Pacific. The demand environment for software products remained largely unaffected. Management highlighted ongoing uncertainty and the potential for future impacts.

The acquisition of Symantec's enterprise security business, completed in November 2019, significantly boosted the Infrastructure Software segment, driving its revenue up by 21% year-over-year. This acquisition also contributed to increased operating expenses, including R&D, SG&A, and amortization of acquisition-related intangible assets.

Broadcom actively managed its debt and liquidity. During the quarter, the company issued $4.5 billion in senior unsecured notes and used the proceeds to repurchase $3.99 billion of existing notes. They also increased borrowings under their revolving facility and repaid commercial paper. Post-quarter, further significant debt refinancing activities were undertaken to strengthen the balance sheet and extend maturity profiles, resulting in a strong cash position of over $9.2 billion at quarter-end.

Yes, Broadcom continues to experience significant customer concentration. For the fiscal quarter ended May 3, 2020, one customer accounted for 14% of net revenue, included in the semiconductor solutions segment. Aggregate sales to the top five end customers accounted for approximately 30% of net revenue. The company notes that the loss of, or significant decrease in demand from, any major customer could materially adversely affect its business.