Broadcom AVGO presented their second quarter earnings on Thursday after market close, and the call, as described by CNBC's Jim Cramer, was "truly depressing."
Broadcom beat Zacks Consensus Estimates for earnings with $5.21, $0.04 higher than estimated. But, Broadcom’s revenue of $5.52 billion came in 2.58% below our revenue estimate. Broadcom also lowered its guidance for fiscal 2019 revenue to $22.5 billion. This is significantly below the Zacks Consensus Estimate of $24.3 billion.
Much of the lowered revenue guidance was due to decline in overall demand, along with the blacklisting of Huawei by the U.S. according to the company. After hours trading on Thursday saw the stock drop over 8% on the back of Broadcom’s new guidance. Shares of AVGO also opened lower Friday and were down over 6.5% through morning trading.
"The environment is very, very nervous," Broadcom CEO Hock Tan said during an analyst call. This outlook has given investors a lot to worry about just as the industry seemed to be on a road to recovery from the trade war fears that were reignited last month and hurt the market.
The slowdown in revenue is not expected to be limited to Broadcom. Broadcom’s downcast revenue guidance helped send other chip stocks down as it signaled possible industry-wide headwinds. Micron Technology MU, Texas Instruments TXN, and NVIDIA NVDA all tumbled more than 2% Friday. Meanwhile, other tech companies like Apple AAPL and Cisco CSCO took hits, albeit smaller than those of the semiconductor stocks, as the concern regarding the demand for tech products grew even larger.
Even companies that have been significantly outperforming the market recently felt the impact. Industry standouts Advanced Micro Devices AMD dipped over 2.5%.
Broadcom’s earnings call provided additional clarity for the industry’s outlook. Overall, the blacklisting of Huawei seems to also be a major problem for many companies in the industry. As one of the three largest cellphone manufacturers, alongside Apple and Samsung SSNLF, Huawei is a huge source of revenue for some semiconductor companies. This loss in revenue, as well as the "broad-based" decline in demand for semiconductors, contributed to indexes declining through mid-day Friday.
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