Broadcom shares drop despite improved Q4 sales outlook

Citing strong demand from wireless sector, chip maker forecasts $1.9B in revenue

Shares of Broadcom (NASDAQ: BRCM) fell as low as 2.03, or 4.5 percent, to 42.95 in early trading Wednesday after the chip maker issued an optimistic revised fourth-quarter sales outlook. On Tuesday the company said it expected revenue for the quarter ending Dec. 31 to be $1.9 billion, at the top end of its previous forecast of $1.8 billion to $1.9 billion. Consensus estimates had spit the difference, with analysts expecting on average sales of $1.85 billion. (Also see: Broadcom readying chip for low-cost Android smartphones)

What may have bothered investors was Broadcom's prediction that product gross margin would fall slightly short of the 50.1 percent margin for Q3. Previously the company had said it expected sequential margins to remain the same. Broadcom's revenue in the third quarter was $1.806 billion. Broadcom issued its revised financial forecast at its 2010 Analyst Day in Irvine, Calif. “Our increased revenue guidance reflects stronger than expected demand for products in our mobile and wireless markets versus our initial expectations entering the quarter,” said Broadcom Chief Executive Scott McGregor in a statement. In the third quarter, Broadcom's mobile and wireless division generated $797 million in sales, or 44.1 percent of total revenue. The company expects Q4 numbers for that division to increase. Its broadband communications unit logged Q3 sales of $562 million, or 31.1 percent of the total. Broadcom said it expects Q4 totals for the division to equal or surpass that amount. Infrastructure and networking revenue in Q3 was $395 million, or 21.9 percent of total sales. Broadcom expects that number to remain unchanged for the fourth quarter.

Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.

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