Signage is displayed outside of Broadcom Ltd. headquarters in Irvine, California, U.S. (Photographer: Patrick T. Fallon/Bloomberg)

Broadcom Profit Estimates Defy Share Drop on Apple Sales Warning

(Bloomberg) -- Earnings estimates for suppliers to Apple Inc. have fallen along with their share prices since October, but estimates for at least one notable name are holding on: Broadcom Inc.

Unlike other companies with a lot of exposure to the iPhone maker, which lowered its sales outlook late Wednesday, Broadcom’s earnings estimates have actually risen. Currently, the semiconductor maker is expected to report adjusted earnings per share of $23.04 for fiscal 2019 -- up from estimates of about $21.50 in October -- and actual earnings of $20.82 in fiscal 2018.

Broadcom gets about 25 percent of its revenue from Apple, according to Bloomberg data.

Broadcom Profit Estimates Defy Share Drop on Apple Sales Warning

Broadcom’s rising estimates stand in contrast to other companies with lots of Apple exposure, including Cirrus Logic Inc., Lumentum Holdings Inc. and Qorvo Inc., all of which have cut their forecasts in recent months.

Those suppliers have seen their share prices plunge as investors worry about the effect of weaker iPhone demand on their business. But Broadcom has outperformed there too. It fell just 1 percent in 2018, all because of a first quarter slide, and rose in each of the final three quarters of the year. By contrast, the S&P 500 Semiconductors and Semi Equipment Index sank 11 percent in 2018 after tumbling 18 percent in the fourth quarter alone.

Before Broadcom fell as much as 9.1 percent today, Bank of America Merrill Lynch wrote that any Apple-related weakness “could be a particularly attractive buying opportunity.” Analysts led by Vivek Arya repeated a buy rating on Broadcom and left estimates unchanged despite the weaker outlook from Apple.

Broadcom could be shielded from volatile iPhone sales, and its dependence on Apple has fallen to about 15-20 percent thanks to the acquisition of CA in November. Arya wrote that more than 80 percent of Broadcom’s sales are derived now from “more stable, sustainable enterprise, cloud, networking, software [and] storage segments.”

Investors in other iPhone suppliers are unlikely to fare as well. Those companies could now face a round of first quarter estimate revisions, as the Apple miss “serves to keep sentiment bearish,” Morgan Stanley analysts led by Craig Hettenbach warned in a note Thursday.

“We remain cautious on semis and see more reasons for investors to reduce exposure, rather than add, in front of what should be a challenging earnings season in the coming weeks,” Morgan Stanley said.

©2019 Bloomberg L.P.