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Avago Technologies Limited (AVGO) Q1 Earnings Preview: Going For 14 In A Row

 February 25, 2013 03:09 PM

(By Rich Bieglmeier) Avago Technologies Limited (AVGO) will report its first quarter fiscal year 2013 financial results and business outlook on Tuesday, February 26, 2013 after the close of the market. Avago's management will host a conference call at 2:00 p.m. Pacific Time on the same day to discuss these results and business outlook.

Wall Street anticipates that AVGO will earn $0.57 for the quarter. iStock expects department store to report earnings that will hit Wall Street's consensus number. The iEstimate is $0.57, too.

Avago Tech is a NASDAQ 100 member and engages in the design, development, and supply of analog semiconductor devices with a focus on III-V based products. Their products are used in cellular phones, consumer appliances, data networking and telecommunications equipment, enterprise storage and servers, factory automation, displays, voice and data communications, camera phones, keypad and display backlighting, backlighting control, base stations, data communications, storage area networking, servers, core routing and transport, in-car infotainment, displays, lighting, factory automation, motor controls, power isolation, and renewable energy systems applications.

[Related -Avago Technologies Ltd (NASDAQ:AVGO) Q4 Earnings Preview: 17 In A Row?]

The NASDAQ 100 member has topped Wall Street's consensus estimate for 13 straight quarters; so, hitting the number would be a first. AVGO has bypassed the street's guesstimate by an average of 10% for the last 3.25 years with a range of 1.47% to 21.31%.

[Related -Stocks Close Higher Amid Weak Data; Clearwire (CLWR) Spikes]

Shares price performance has been nearly as impeccable, turning in gains in the days surrounding earnings 11 of the last 13 quarterly checkups. On average, the tech company's shares gained 4.65%, maxing out at 10.2% twice, and a puny low of 0.30%. The two losses have been manageable at -1% and -7.7%.

Avago's business is impacted by general conditions of the semiconductor industry and seasonal demand patterns in target markets. A relatively small number of customers have accounted for a significant portion of their revenue. Sales to distributors accounted for 32% for the year ended October 28, 2012 with 17% going to Foxconn Technology Group, best known for making Apple's products along with Amazon's Kindle, Sony's PlayStation and Nintendo's Wii. Overall, Avago Tech's top 10 customers, which includes three distributors, collectively accounted for 54% of 2012's net revenue.

According to Gartner, "Worldwide semiconductor revenue is projected to total $311 billion in 2013, a 4.5 percent increase from 2012 revenue. Due to economic headwinds and an inventory correction, the fourth quarter projections have been revised down from the previous quarter's forecast of $330 billion."

Dale Ford, senior director, electronics and semiconductor research for HIS says, "The semiconductor industry slipped from stagnation in the first half of 2012 to a slump in the second half. Still, one of the few silver linings is that the fourth quarter is expected to bring a mild recovery in year-over-year growth, setting the stage for a market rebound in 2013."

If Ford is correct about the fourth quarter of 2012 versus 2011, then AVGO has room for another upside surprises as the semi company earned $0.57 a year-ago.

In Q4, Avago reported sales growth of 1.2%. Meanwhile, inventory remained flat, and accounts receivables increased 3.9%, neither of which is alarming to iStock.  To us, this means margins should hold fast, and if sales did tick up, then another surprise of 2-5 cents is possible.

Overall, Avago Technologies Limited's (AVGO) history points to a bullish earnings surprise followed by small gains. Limited options activity suggest speculators are looking for AVGO  to top $35 should earnings deliver.



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