Although Broadcom’s board of directors passed a $12 billion stock repurchase program on April 14th, rumors concerning the downturn in iPhone sales, TSMC and Qualcomm’s peer financial reports showed that the wireless business performance was weak, Broadcom lowered the second-quarter earnings guidance. Factors have pressured Broadcom's stock price.
Every Apple phone Broadcom earns $10
However, according to JPMorgan's report, Broadcom will provide Apple with all the non-RF chips in the new iPhone, which means that each Apple phone will bring Broadcom a $10 income.
JP Morgan analyst Harlan Sur pointed out that in the next iPhone, Broadcom will maintain its share in non-RF chips. This means that Broadcom will become the only iPhone wireless charging, Wi-Fi, Bluetooth and GPS features the only supplier .
'We believe Broadcom will become the 100% non-RF chip supplier for the new generation iPhone in 2018, and provide chip support for connectivity (Wi-Fi, Bluetooth, GPS), etc., as well as analog interfaces and wireless charging. Apple closely cooperated. ' Sur said in the report. 'We have seen that in the 2018 iPhone model, the cost of non-RF chips has increased by 8% to 10%, including wireless charging chip upgrades and GSP/wireless charging surcharge rates The increase is the main factor in price increase. '
JP Morgan expects Broadcom’s second-quarter profit of $4.77, in line with Wall Street consensus expectations. However, JP Morgan expects Broadcom’s third quarter profit of $4.63, which is better than Wall Street consensus expectations.
'The market often ignores Broadcom’s dominant position in wireless connectivity, including Wi-Fi, GPS and Bluetooth. The close partnership with Apple will enable Broadcom to continue to be the non-RF chip supplier for all iPhones in 2018. We expect next year As Apple turned to Broadcom's next-generation Bluetooth and Wi-Fi combo chips, Broadcom will make more profits on the iPhone in 2019,' Sur said.
In addition to optimistic earnings expectations, the analyst also reiterated his rating on Broadcom stock price and raised its target share price to 337 US dollars at the end of 2018, an increase of up to 30%.
Wall Street still optimistic about Broadcom
From the quarterly earnings report, 40% of Broadcom’s overall revenue is derived from its wireless business, which is mainly dependent on iPhone sales, because Broadcom has provided eight components for the iPhone. Previously, foreign media have repeatedly Reported that Apple's latest iPhone (especially iPhone X) sales are sluggish.
However, Broadcom gradually recovered after reaching the bottom on May 4th, which is partly related to the announcement of an over-expected earnings report from Apple. The financial report shows that iPhone shipments in the second quarter were 52.2 million units, which was a 3% increase from the same period in 2017. Compared with the first quarter, it fell by more than 32%, but considering the holiday consumption factors, this fall is a normal category. Compared with sales in the same period, iPhone sales in Q18 in 2018 still set the second-best record in history.
It is true that in the field of smart phones with a slowing growth, the iPhone shipments in the future may not grow as fast as in the same period. For this challenge, Broadcom’s best response is to continue to increase the unit price of components supplied to the iPhone.
Evercore ISI analyst CJ Muse also covered Broadcom for the first time on May 24, setting a 'outperform' rating and a $300 target share price. Muse believes that concerns about the downturn in iPhone sales have been fully accounted for by Broadcom. Among stock prices, 'radical' stock repurchases and improved gross margins will become catalysts for stock price rise.
Although Broadcom’s downward adjustment of revenue expectations in the second and third quarters kept investors cautious, overall Wall Street analysts are still optimistic about Broadcom’s future performance.