Hi Saul-acolytes.
[I say that in the “assistant” sense because, while Saul is helping us all, we’re also all helping each other.]
I have some insight into AVGO because it is - loosely - a SWKS competitor. But my knowledge isn’t very deep, as I don’t own shares of AVGO. I do find it intriguing enough that it remains on my Watch List, though.
I’m going to take a first quick-cut at this based on my Value Line subscription and some information from the company web site. If someone else wants to take up the charge and dig deeper, please do! I think this is a worthwhile company to know more about, but I can only devote limited time to it right now.
I thought about labeling the bullet points below “pros” and “cons”, but that would overlay the facts with my prejudices, so I’ll just call them all “observations”. I’ll probably compare to SWKS a bit since it is probably more familiar to many of you.
* Broadcom (AVGO) is a foreign corporation.
Avago bought Broadcom and took on the Broadcom name. The company is based in Singapore with a Cayman Islands subsidiary. Since acquiring Broadcom, though, the company appears to file with the SEC as if it is U.S.-based (i.e., the last three quarterly filings have been on SEC Form 10-Q).
* Avago (now called Broadcom) is a very acquisitive company.
http://www.broadcom.com/company/timeline/
I’m not sure whether this list is complete, but it gives a sense…
2013: Javelin Semiconductors and CyOptics
2014: LSI Corp and PLX Technology
2015: Emulex
2016: Broadcom
* Broadcom has a substantial debt load.
AVGO has almost $14 billion in debt as of the end of July 2016, although only one-quarter of that debt is due in the next five years. I think the debt load is primarily a result of the acquisitions. For comparison, FY16 revenues were probably in the $13 billion range.
* Broadcom’s share performance has been awe-inspiring.
In 2012, AVGO traded in a $28-40 range. It is over $170 now.
* Recent earnings have been marred by acquisition-related costs.
AVGO’s fiscal 2Q16 loss was almost $3.00 per share. Combined with a 3Q16 loss, AVGO will not have a profitable year. These are GAAP numbers I’m offering you - I’m sure non-GAAP looks much better.
* It is not clear that AVGO is over-valued.
Certainly the current numbers (at least the GAAP numbers) paint a horrible picture. However, Value Line expects (as of 9/30/16) FY17 earnings to be $7.75, so you have a forward PE in the ballpark of 20x. AVGO has been growing revenue and earnings at around that rate or better.
* AVGO is one of the few companies I’m aware of that increases its dividend every quarter.
AVGO started paying a dividend in 2011, but I don’t know (without further resaerch) what the quarterly numbers were that year. But, since 2012, the dividend has increased every quarter sequentially. For example, in FY15, the quarterly dividends were $0.38, $0.40, $0.42, and $0.44. That is unusual and remarkable (and, well, I’ve just remarked on it). Sequential growth slowed in 2016, after a big jump between the 12/15 and 3/16 payments ($0.44 to $0.49). The current dividend yield is in the 1.1-1.2% range.
* Broadcom’s product set is broader (if you will) than SWKS’.
I am not 100% certain of this, but I don’t think the two are pure competitors. I think you may find some AVGO components in SWKS products and vice versa. But they compete too. There are some areas where Broadcom competes, though, that SWKS is not in that market. I think, though, that AVGO competes in every market where SWKS is present.
That’s all I have right now. Who wants to take the next step?
Fool on!
Thanks and best wishes,
TMFDatabaseBob (long: SWKS; AVGO is on my Watch List)
See my holdings here: http://my.fool.com/profile/TMFDatabasebob/info.aspx
Peace on Earth