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Broadcom profit soars but investors aren't pleased

Broadcom's shares fall more than 6% after it reports fourth-quarter earnings of $266 million, up from $59.2 million a year earlier.

February 02, 2011|By David Sarno, Los Angeles Times

Broadcom Corp. reported a profitable fourth quarter, with record sales of microchips that run inside wireless devices such as Apple's iPhone and iPad, Nintendo's Wii and Google Android smart phones.

But the Irvine chip maker's profits failed to get investors adequately wired.

The company registered a profit of $266 million, or 47 cents per diluted share — up from $59.2 million a year earlier.

But Broadcom's stock quickly shed more than 6%, hovering around $43.50 in after-hours trading after the earnings announcement. Broadcom's stock, up nearly 70% in the last year, had risen 2.88% during regular trading Tuesday.

"It appears that the weakness in the stock is due to Broadcom's gross margins on the quarter being a bit lighter than expected," said Brian Blair, an analyst with Wedge Partners Corp.

Gross margins are a financial indicator of how well a company has been able to hold down its production costs, compared with how much revenue its products are bringing in.

Still, Broadcom registered record sales of $1.95 billion, a 45% increase over the same quarter last year. The company also announced a 12.5% increase in per-share dividend, to 36 cents per share per year, and a $300-million stock buyback.

"Broadcom's strong growth and powerful operating cash flow drive our ability to increase the return of capital to our investors while fueling our business organically," Chief Executive Scott McGregor said in a statement.

Broadcom has grown in part through its acquisition of 43 companies in the last decade.

The company also announced its annual results: $6.82 billion in sales — a 52% increase over last year — and $1.08 billion in profit.

Broadcom supplies chips for hundreds of communications devices, including Web servers and popular consumer gadgets like Apple's iPad and iPhone, for which the company supplies Bluetooth and Wi-Fi chips.

Both iPad and iPhone had record sales over the holiday quarter, a benefit to Broadcom.

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