Avago Profit Tops Street As Sales Climb 23%; Outlook Weak

(RTTNews) - Singaporean chip maker Avago Technologies Ltd. (AVGO) Tuesday reported an increase in first-quarter profit, aided by a 23 percent jump in sales, partly offset by restructuring and other charges. Results for the quarter topped Wall Street estimates with ease.

Avago provided a weak sales outlook for the second quarter as product transition at a major smartphone OEM customer would likely impact its wireless segment.

Results for the quarter benefited from strong growth in wireless and wired infrastructure end markets and a recovery in industrial revenue, said CEO Hock Tan.

Avago posted first-quarter net earnings of $134 million or $0.53 per share, compared with $125 million or $0.50 per share last year.

Excluding items, adjusted earnings for the quarter were $217 million or $0.84 per share, compared with $163 million or $0.65 per share a year ago. On average, 12 analysts polled by Thomson Reuters expected earnings of $0.78 per share for the quarter. Analysts' estimates typically exclude special items.

Sales for the first quarter climbed to $709 million from $576 million in the prior year. Sixteen analysts had a consensus revenue estimate of $705.3 million for the quarter.

Among segments, Wireless Communications sales climbed 13 percent year-over-year and Wired Infrastructure jumped 59 percent.

Gross margin for the quarter was flat at 48 percent, and on an adjusted basis, this was up 1 percentage point at 52 percent.

For the second quarter, Avago projects sales to decline 3 percent to 6 percent sequentially, implying a range of $666.46 million to $687.73 million. Analysts expect sales of $696.60 million for the quarter.

Gross margin for the quarter is expected to be 48.5 percent, plus or minus 1 percent while capital expenditures is projected to be about $70 million.

In December, Avago agreed to acquire semiconductor company LSI Corp. (LSI) for $6.6 billion in a bid to position itself as a leader in the enterprise storage market and expands its capabilities in wired infrastructure. The deal is expected to close during the first half of calendar 2014.

Avago believes the deal to create a highly diversified semiconductor market leader with about $5 billion in annual revenues.

The company expects the deal to be significantly and immediately accretive to Avago free cash flow and adjusted earnings per share.

Avago stock closed Tuesday at $59, down $0.57 or 0.96%, on a volume of 2.55 million shares on the Nasdaq. In after hours, the stock dropped $0.30 or 0.51% at $58.70. In the past year, the stock has traded in the range of $30.57 - $60.0.