|Broadcom’s Woes Could Point to Trouble for Apple|
By Tae Kim
June 14, 2019 2:25 p.m. ET
Chip maker Broadcom ’s full-year sales guidance reduction may point to poor iPhone sales, according to Bank of America Merrill Lynch.
Apple (AAPL) is Broadcom’s (AVGO) biggest customer, accounting for about a quarter of Broadcom’s revenue in fiscal 2018, according to the last annual securities filing. Cowen also estimated the iPhone generated more than 50% of Broadcom’s Wireless segment sales.
On Thursday, Broadcom reduced its 2019 revenue guidance to $22.5 billion, from $24.5 billion, and lowered its outlook for capital spending to $500 million, from $550 million. The reduction sent Broadcom stock tumbling on Friday.
Broadcom’s “guide down could indicated continued weak iPhone units,” Bank of America Merrill Lynch analyst Wamsi Mohan said Friday in a note to clients.
Apple stock was down 0.8% in Friday afternoon trading, to $192.52 per share, while the Dow Jones Industrial Average was down just slightly.
Mohan estimated that Broadcom’s poor guidance implies 5 million to 10 million fewer iPhone units for the year. He kept his Buy rating and $230 price target for Apple stock, due to its “strong capital return” program and services growth opportunities.
Broadcom’s report also affected the general chip sector. The iShares PHLX Semiconductor ETF (SOXX), which tracks the performance of a widely followed semiconductor sector index, fell 2.8% on Friday.