Broadcom warns of weak demand for smartphone components

The San Jose, California-based company makes chips that filter radio signals and provide WiFi connections in iPhones and other smartphones.

Broadcom (Broadcom/Facebook)

Broadcom Inc., a chipmaker that supplies Apple Inc. and other large electronics makers, gave a lackluster forecast, as weak demand for smartphone parts overshadowed rising orders from data center owners. Revenue in the three months ended in July will be $5.75 billion, plus or minus $150 million. That compares with an average analyst prediction of $5.77 billion, according to data compiled earlier on Thursday by Bloomberg.

The San Jose, California-based company makes chips that filter radio signals and provide WiFi connections in iPhones and other smartphones. With much of the world's population confined to their homes, handset demand has dropped. Broadcom is also a key supplier of switch chips, the complex semiconductors that manage data traffic in networking equipment, an area where demand is surging.Read more: Smartphone Shipments Projected to Fall a Record 12% in 2020

“Looking ahead, our third-quarter guidance for semiconductors reflects a surge in demand from cloud, telecom and enterprise customers, offset by supply chain constraints and an expected substantial reset in wireless,” Chief Executive Officer Hock Tan said in a statement.

Tan explained that his “large North American smartphone customer” -- typically how he refers to Apple -- is undergoing a “product cycle delay.” That means the usual improvement in wireless-related orders that comes in the company's fiscal third quarter, which runs through July, will now be seen in the following three-month period. This implies the debut of the next iPhone will come later than its usual September release. Phone makers typically order chips months in advance of building the devices.

Balancing that weakness in smartphones, orders for chips used in data center gear have strengthened into the current period, Tan said. Bookings remain “extremely strong” he said. A bright spot for the industry has been the rush to buy equipment by the large cloud-computing providers, who are spending to increase their capacity in an effort to meet a flood of extra traffic caused by the boom in remote work.

Three months ago, Broadcom withdrew its annual sales forecast and gave weak near-term guidance, citing the coronavirus pandemic. Tan said in March that the supply chain hadn't been hurt by the lockdown. Then in April, the company told customers to place orders at least six months ahead of time because of shelter-in-place rules in Malaysia, Thailand, Singapore and the Philippines. That supply chain is now on the mend, he said.

Read more: Broadcom Sounds Alarm on Unforeseen Tech Industry Disruptions

Broadcom, one of the latest to report earnings in the tech sector, is giving an up-to-date view on demand as the economy crumbles in the midst of the pandemic. The stock gained about 1% in extended trading following an initial decline. The shares closed at $308.89 earlier in New York.

The company, one of the world's largest chipmakers, has branched out into mainframe computer and security software. Tan assembled Broadcom in a string of acquisitions, giving its products a role in everything from powerful data center networking gear to smartphones.Net revenue in the fiscal second quarter rose 4% to $5.74 billion, the company said. Before certain items, profit was $5.14 a share.

Written by Ian King.