Avago Technologies Reports Solid Wireless Revenue Growth Guidance

In our view, Avago Technologies perseveres to amaze the Street with its growth, as operating margins percentage nearly 330 basis points ahead their 30% operating margins target in fiscal year 2015 and fiscal year 2016 in our theory. The mobile revenue growth came into much stronger free cash flow, which we lightly offset with a lower applied P/FCF ratio. We maintain our “Outperform” rating and hike price target to $99.

 

Company’s more than 60% sequential wireless communications revenue outlook is led by 1/3 units and 2/3 content hikes. We expect that in longer run, company may gain from more LTE bands:  smart phones need more FBAR filters to cover add-on bands, which mean growing content for company. As we forecast the LTE build out nearly 30% finished as of now, we do not expect it is awkward to estimate company’s wireless communications revenues increasing two times over the next five years believing there would be no further loss in shares values. We think addition of $2 billion or almost 30% could result into a $6 billion to $7 billion wireless communications business while the LTE build out is finished.

 

We stand by company’s estimate to grow two times as the industry is well encouraged by three major reasons: 1) Solid IP in main technologies, which drives performance lead over competitors; 2) experience to material trends assisting the requirements for rollout of LTE along with data demands; and 3) share improvements in the wired market on SerDes with optical solutions. Due to the wireless handset type of the revenue outlook hike, we expect the better revenue performance is more wireless intense, which develops more risk for company revenue and EPS estimates set by the consensus. We thus decrease our P/FCF ex-cash ratio to 14.5 from 15.5.

 

We forecast that the Axxia Networking business had nearly $16 million operational expenses per quarter while the Flash business had $34 million. We believe company’s operational expenses will reduce to more than $300 million by the end of fiscal year 2015 in spite of 35% year-over-year revenue growth. Company deals an Axxia along with Flash business which are expected to deliver $270 million revenues in 2015 and lower corporate average gross margins and operating margins for a PLXT business which will have $120 million in revenues in 2015 and is more than corporate gross margins along with $800 million in cash. We believe company is utilizing $500 million of the $800 million to return debt in a first quarter of fiscal year 2015.

About

Elizabeth Clark, CPA, is a senior analyst for The Downtown Leader. If you have a great story idea for Elizabeth Clark, you can write at [Elizabeth.Clark@downtownleader.com ].