Shares of Apple Supplier Broadcom Jump Despite iPhone Sales Dip

June 3, 2016, 2:59 PM UTC
An attendee passes the Broadcom Corp. pavilon on day two of the Mobile World Congress in Barcelona, Spain, on Tuesday, Feb. 25, 2014. Top telecommunication managers will rub shoulders in Barcelona this week at the Mobile World Congress, Monday, Feb. 24 - 27, a traditional venue for showcasing the latest products for dealmaking. Photographer: Angel Navarette/Bloomberg
Photograph by Angel Navarette/Bloomberg

The iPhone 6S may be down and the Galaxy S7 may be up, but for chip supplier Broadcom, there is balance in the smartphone market’s sales plateau.

The newly renamed Avago, which took the name of the company it bought for $37 billion last year, reported its most recent quarterly results after the market closed on Thursday and surprised Wall Street with stronger profits and a better forecast for the rest of the year than analysts expected. Broadcom shares, still trading under their old “AVGO” ticker symbol, jumped as much as 7% in morning trading on Friday.

The behemoth chip maker, thanks to last year’s biggest ever chip industry merger, is now a leading supplier of all kinds of smartphone chips, including the radios that power Wi-Fi, mobile data connections, Bluetooth, and GPS. Apple and Samsung are both major customers.

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Apple (AAPL) in April reported its first ever year-over-year decline in iPhone sales, as sales in China slowed and customers worldwide were less excited about upgrading older models. Meanwhile, the S7 has been a surprise hit for Samsung, as customers flocked to buy the new waterproof model.

Broadcom (AVGO) investors were expecting the smartphone slowdown, particularly falling iPhone sales, would be more painful. But the surprising popularity of the S7 line helped make up for Apple’s weakness, CEO Hock Tan explained without naming names.

“As expected, we did see a decline in demand from a large North American smartphone customer, including the anticipated impact of their seasonal product life cycle related reduction in shipments,” he told analysts, referring to the tendency for iPhone sales to dip in the spring before new models arrive in the fall. “This was partially offset by an increase in shipments to a large Asian handset OEM.”

But looking ahead, Tan says Apple is already placing orders for its next iPhone upgrade. Although most analysts expect only a modest uptick in iPhone sales, some reports have indicated Apple is putting in large orders with suppliers for as many as 78 million new handsets.

“Moving on to the third quarter, we (are) expecting a very different picture for our wireless segment, and expect strong sequential revenue growth in the mid 20% range,” Tan said. “The expected growth is driven by the start of a ramp from a large North American smartphone customer, as they transition to their next generation platform.”

For more on what might be in the next iPhone, watch:

Other parts of Broadcom’s business are also doing well, such as chips used in cable television set top boxes. Cable providers are anticipating big growth in the number of customers with higher definition 4K TV sets and thus are ordering upgraded set top boxes, Tan said. And growth in cloud data centers is also fueling sales of chips used in faster data center networking gear.

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