How Broadcom Stockholders Have Profited From Failed Qualcomm Deal

When Broadcom Inc. (NASDAQ: AVGO) reported third-quarter fiscal 2018 results after markets closed on Thursday, the chipmaker posted adjusted diluted earnings per share (EPS) of $4.98 and adjusted revenues of $5.07 billion. The consensus analysts’ estimates called for EPS of $4.82 and $5.07 billion in revenue. In the third quarter of 2017, Qualcomm reported EPS of $4.10 on revenues of $4.47 billion.

Chief Financial Officer Tom Krause told The Wall Street Journal that the company expects “another substantial increase” in quarterly dividend payouts. The company raised its dividend from $1.02 to $1.75 in December. That’s a yield of 3.19% at last night’s closing price. While it’s impossible to say what may have happened to Broadcom’s share price if its offer for Qualcomm had gone through, one thing that is fair to say is that shareholder payouts would have been slimmer.

The company has a $19 billion offer pending for CA Inc. (NASDAQ: CA), and if it pays off at all like the Brocade acquisition, shareholders could be even happier. Brocade was the major reason for a 70% increase in Broadcom enterprise storage revenue in the quarter.

CEO Hock Tan said:

Datacenter demand is driving strong growth in more than 50 percent of our consolidated revenue. Through the strength of our franchise business model, we delivered another quarter of sustained revenues and strong free cash flows.

Krause added:

During the quarter, we repurchased 24 million shares, returning approximately $5.38 billion to our stockholders. Consistent with our stated capital allocation plan, we intend to return to stockholders 50 percent of the prior fiscal year free cash flow in the form of cash dividends. With the balance of our free cash flow, we have the financial flexibility to fund a combination of share repurchases and future acquisitions to expand earnings capacity.

For the company’s fiscal fourth quarter, Broadcom forecasts revenue of $5.32 billion to $5.47 billion and gross margin of 51.3% to 53.3%. Analysts had estimated revenues at $5.35 billion and adjusted EPS at $5.21.

Broadcom stock traded up about 4.8% in Friday’s premarket session, at $226.22 in a 52-week trading range of $197.46 to $285.68. The 12-month consensus price target on the stock is $288.61.