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Shares of Chip Maker Plunge

Broadcom's forecast misses estimates, sending the stock price down 12.3%. The firm cites excessive inventory.

July 22, 2006|From Bloomberg News

Shares of Broadcom Corp. fell 12.3% on Friday after the Irvine chip maker forecast third-quarter sales that missed analysts' estimates because of excessive inventory.

The shares fell $3.24 to $23.11, the biggest decline since October 2004. They have fallen 26% this year.

Broadcom in the five prior quarters issued forecasts that topped analysts' expectations.

Too much inventory of chips for DSL and Ethernet switches and the phase-out of a cellular phone led the company to forecast sales of $900 million this quarter. Analysts on average expected $984.8 million, according to a Thomson Financial survey.

"Historically, the company has recovered quickly" from inventory problems, said Arnab Chanda, an analyst with Lehman Bros.

Broadcom said Thursday that second-quarter sales climbed 56% to $941.1 million as demand grew for television set-top boxes, below the $941.8-million average estimate of the analysts.

Inventory rose to $278 million from $226.3 million in the first quarter, the company said.

Chief Financial Officer Bill Ruehle said sales in the fourth quarter would top that of the second quarter. Analysts on average expect $1.04 billion, according to a Thomson survey.

That would suggest "a mild correction," Chanda said. "We won't know the extent of the correction for a couple of months."

Broadcom provided only partial results for the second period because of a pending internal review of stock option grants. It said it probably wouldn't file its quarterly statement with the Securities and Exchange Commission by the Aug. 9 deadline.

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