7/24/2003 - Broadcom Corporation (Nasdaq: BRCM), the leading provider of silicon solutions enabling broadband communications, reported financial results for its second fiscal quarter ended June 30, 2003.
Net revenue for the second quarter of 2003 was $377.9 million, an increase of 15.4% from the $327.5 million reported for the first quarter of 2003 and an increase of 46.3% from the $258.2 million reported for the second quarter of 2002. Net loss computed in accordance with generally accepted accounting principles (GAAP) for the second quarter of 2003 was $831.7 million, or $2.87 per share (basic and diluted), compared with a GAAP net loss of $67.9 million, or $.25 per share (basic and diluted), for the first quarter of 2003, and a GAAP net loss of $129.4 million, or $.49 per share (basic and diluted), for the second quarter of 2002.
Broadcom reports net income (loss) and basic and diluted net income (loss) per share in accordance with GAAP and additionally on a non-GAAP basis, referred to as pro forma, which excludes the effects of stock-based compensation expense, amortization of purchased intangible assets, employer payroll tax expense on certain stock option exercises, certain charges such as impairment of goodwill, stock option exchange expense, settlement costs and restructuring costs, gain or loss on strategic investments, non-operating gains, valuation allowance on deferred tax assets and other related income tax effects.
After excluding these charges, gains and effects included in GAAP reporting, pro forma net income for the second quarter of 2003 was $29.6 million, or $.10 per share (diluted). This compares with pro forma net income of $17.0 million, or $.06 per share (diluted), for the first quarter of 2003, and pro forma net loss of $16.8 million, or $.06 per share (basic and diluted), for the second quarter of 2002. Over 95% of the charges, gains and effects excluded from pro forma reporting were non-cash. A reconciliation of GAAP net loss to pro forma net income (loss) appears in the financial statements portion of this release.
GAAP net loss per share for the second quarter of 2003 was based on 289.7 million weighted average shares outstanding (basic and diluted), compared with 276.3 million weighted average shares outstanding (basic and diluted) for the first quarter of 2003. Pro forma net income per share for the second quarter of 2003 was based upon 307.1 million weighted average shares outstanding (diluted), compared with 289.0 million weighted average shares outstanding (diluted) for the first quarter of 2003. Both GAAP net loss per share and pro forma net loss per share for the second quarter of 2002 were based on 265.4 million weighted average shares outstanding (basic and diluted).
For GAAP reporting purposes, Broadcom recognized several charges during the second quarter of 2003, all of which were excluded from pro forma net income. The company performed an impairment review of its goodwill as required under GAAP and recorded a non-cash goodwill impairment charge of $438.6 million. Most of this charge represented the balance of goodwill related to the ServerWorks acquisition, following the rules of SFAS 142 and with the expectation of future market share losses in that business. This charge reduced the total carrying value of goodwill on the company’s balance sheet as of June 30, 2003 to $841.3 million.
In the second quarter, Broadcom also recorded a $220.7 million charge related to its previously announced employee stock option exchange program, completed in May 2003. This amount included non-cash charges of $162.3 million related to the issuance of 8.6 million shares of Class A common stock in exchange for cancelled options covering 32.6 million shares and $55.6 million related to the acceleration from future periods of stock-based compensation expense. Also included in the total amount were $2.8 million in cash charges related to associated employer payroll taxes and professional fees.
Broadcom recorded $118.3 million in settlement costs in the second quarter related to settlements in connection with its ServerWorks management transition and certain outstanding litigation. This amount included cash payments of $30.2 million and non-cash charges of $88.1 million related to the acceleration from future periods of stock-based compensation expense.
Net revenue for the six months ended June 30, 2003 was $705.3 million, an increase of 41.9% from the $497.0 million reported for the six months ended June 30, 2002. GAAP net loss for the six months ended June 30, 2003 was $899.6 million, or $3.18 per share (basic and diluted), compared with a GAAP net loss of $295.5 million, or $1.12 per share (basic and diluted), for the six months ended June 30, 2002.
Pro forma net income for the six months ended June 30, 2003 was $46.6 million, or $.16 per share (diluted). This compares with a pro forma net loss of $38.7 million, or $.15 per share (basic and diluted), for the six months ended June 30, 2002.
GAAP net loss per share for the six months ended June 30, 2003 was based on 283.0 million weighted average shares outstanding (basic and diluted). Pro forma net income per share for the six months ended June 30, 2003 was based upon 298.0 million weighted average shares outstanding (diluted). Both GAAP net loss per share and pro forma net loss per share for the six months ended June 30, 2002 were based on 263.7 million weighted average shares outstanding (basic and diluted).
Broadcom believes pro forma reporting provides meaningful insight into the company’s on-going economic performance and therefore uses pro forma reporting internally to evaluate and manage the company’s operations. Broadcom has chosen to provide this supplemental information to investors to enable them to perform additional comparisons of operating results and as a means to emphasize the results of on-going operations.
“We have reached an important company milestone this quarter, with record revenues of $377.9 million taking us into our eighth consecutive quarter of revenue growth,” said Alan E. “Lanny” Ross, Broadcom’s President and CEO. “During the quarter we saw strength in revenues across most of our businesses, both in our core markets for cable set top boxes and modems, servers and enterprise networking solutions as well as in our emerging markets, including the markets for wireless LAN, DSL, DBS (direct broadcast satellite) and BluetoothTM. We are encouraged that our investments in people and technology are continuing to positively show themselves in our results.”
Following is a review of selected key accomplishments and progress during the second quarter in some of the principal markets served by Broadcom:
In wireless markets, Broadcom extended its leadership position in the market for 802.11g wireless LAN solutions, announcing that Fujitsu and Gateway have joined the growing list of notebook manufacturers offering Broadcom’s 54gTM wireless option. Furthermore, to help bring the large installed base of consumer and commercial desktop computers into the wireless domain, Broadcom also became the first company to offer both 802.11g and 802.11a/g USB adapters. Also during the quarter, 802.11g became an official IEEE standard. Broadcom was first to market in November 2002 with pre-standard 802.11g products and has since established a leading market share position in that sector. Through Broadcom’s OneDriverTM suite of software drivers, the company has been able to ensure its customers that 100% of their pre-standard 54gTM based products are upgradeable, via software, to the recently adopted IEEE standard.
In the market for Bluetooth solutions, Broadcom announced production availability of the first single-chip wireless keyboard and mouse solution based on its BlutoniumTM Bluetooth product family. This product integrates the entire system solution for the mouse and keyboard as well as the complete Bluetooth wireless subsystem onto a single chip. Qualcomm and Broadcom also entered into a collaboration to join Qualcomm’s Bluetooth baseband solution, which is integrated into its MSM5xxx and MSM6xxx baseband chips, with Broadcom’s Bluetooth RF solution. The goal of the collaboration is to expand the use of Bluetooth technologies on CDMA wireless networks throughout the world.
In wireless handsets, Broadcom began sampling a complete cellular handset platform that enables leading handset manufacturers to develop next generation mobile multimedia solutions based on the EDGE (Enhanced Data rates for GSM Evolution) standard.
In the market for broadband communications, Broadcom extended its long-running supply agreement with cable set-top market leader Motorola as primary supplier of silicon for Motorola’s standard definition and high definition video set-top boxes through 2004. The relationship will continue to drive next-generation video services for consumers on cable networks such as high definition (HD) video programming and personal video recording (PVR), which are incorporated into Motorola’s recently introduced DCT6000 product family. Showing its complete solutions approach to end markets, Broadcom also announced that ADC Telecom, ARRIS and Cisco Systems plan to use its new chips for their next-generation DOCSIS 2.0-based CMTS equipment.
In the networking market, Broadcom released a number of new products that help enable its customers to deliver a complete solution to their respective end customers. Broadcom was also successful in the quarter developing other core technologies, such as additional voice and security capabilities, which are being leveraged throughout much of Broadcom’s product line.
On the client, or consumer, side of networking, Broadcom announced that HP Compaq’s business desktops (models d330 and d530) are integrating Broadcom’s NetXtremeTM Gigabit Ethernet controllers. In addition, Broadcom made two important announcements with respect to its VoIP (Voice over Internet Protocol) efforts. Broadcom and Ambit Microsystems reported that shipments of residential VoIP products, based on Broadcom’s technology, have exceeded two million units in Japan, helping that market to become the world’s largest for consumer VoIP adoption to date. Ambit’s products use Broadcom’s BCM1112 VoIP engine and xChangeTM VoIP firmware. In addition, Broadcom announced the BCM1115 Internet Protocol (IP) engine, enabling manufacturers to build cost-effective IP phones at price points approaching those of legacy phones.
On the infrastructure side of enterprise networking, highlights in the second quarter included the introduction of the Sentry5TM product family, featuring the world’s most integrated secure switch processors that include key technologies such as Fast Ethernet switching, IP security (IPsec) processing and MIPSÒ processing onto a single router system on a chip. Also in security, Broadcom introduced two new CryptoNetXTM accelerators for virtual private networking (VPN) equipment.
Other important developments in the infrastructure side of networking included two devices for high-speed, box-to-box interconnection between routers and switches. The BCM8022 enables low-cost 10-Gigabit communication over 15 meters of copper media while the BCM8703 enables 10-Gigabit speeds over optical fiber media. Also, Broadcom began shipping a custom three-chip serial backplane transceiver chipset for Foundry Networks’ next-generation terabit capacity enterprise switch and metro/service provider router architectures.
In the telecom marketplace, Broadcom introduced the BCM8228, a highly integrated, low-power, variable rate transceiver/mapper enabling customers to build a single line card solution for multi-protocol datacom, storage and telecom services.
“In summary, we believe that Broadcom is in a strong position today because of our continued focus on delivering complete silicon solutions for broadband communications,” Mr. Ross said. “This focus has enabled Broadcom to develop a much more diversified product line, a more diversified customer base, a broader and deeper management team, and a strong balance sheet.”
Broadcom will conduct a conference call with analysts and investors to discuss its second quarter 2003 financial results and current financial prospects today at 1:45 p.m. Pacific Time (4:45 p.m. Eastern Time). The company will broadcast the conference call via webcast over the Internet. To listen to the webcast and to access additional financial and statistical information that will be discussed on the conference call, including the information disclosed in accordance with SEC Regulation G, please visit the Investor Information section of the Broadcom website at www.broadcom.com/investor. The webcast will be recorded and available until 5:00 p.m. Pacific Time on Tuesday, August 5, 2003.
Broadcom Corporation is the leading provider of highly integrated silicon solutions that enable broadband communications and networking of voice, video and data services. Using proprietary technologies and advanced design methodologies, Broadcom designs, develops and supplies complete system-on-a-chip solutions and related hardware and software applications for every major broadband communications market. Our diverse product portfolio includes solutions for digital cable and satellite set-top boxes; cable and DSL modems and residential gateways; high-speed transmission and switching for local, metropolitan, wide area and storage networking; home and wireless networking; cellular and terrestrial wireless communications; Voice over Internet Protocol (VoIP) gateway and telephony systems; broadband network processors; and SystemI/OTM server solutions. These technologies and products support our core mission: Connecting everything®.
Broadcom is headquartered in Irvine, Calif., and may be contacted at 1-949-450-8700 or at www.broadcom.com.
Broadcom®, the pulse logo, Connecting everything®, 54gTM, BlutoniumTM, CryptoNetXTM, NetXtremeTM, OneDriverTM, Sentry5TM, SystemI/OTM, and xChangeTM are trademarks of Broadcom Corporation and/or its affiliates in the United States and certain other countries. BluetoothTM is a trademark of the Bluetooth SIG. MIPS® is a trademark of MIPS Technologies, Inc.
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