Chipmaker Avago Technologies Ltd (NASDAQ:AVGO) has successfully managed to turn its business around, and its recently released third-quarter results are proof. The company’s business was in a state of flux earlier this year due to a product transition at its chief customer, but things have changed for the better.
Avago Technologies Ltd (NASDAQ:AVGO)’s revenue guidance of $721 million-$740.5 million for the current quarter is ahead of the $696.3 million consensus. This is not surprising as Avago is a key supplier to Apple Inc. (NASDAQ:AAPL).
A big opportunity
Last year, Avago supplied radio frequency chips for the iPhone 5, and Foxconn had accounted for 17% of Avago’s overall revenue. With Apple Inc. (NASDAQ:AAPL)’s next edition of the iPhone expected to release in September, it is not surprising that Avago’s guidance came in way ahead of what analysts were expecting. As Apple ramps up production of the handset, Avago will no doubt benefit.
Moreover, as we approach the iPhone launch date, the possibility of a cheaper “iPhone 5C” being in existence is getting stronger, and this should further help Avago Technologies Ltd (NASDAQ:AVGO) by increasing its addressable market.
Apple Inc. (NASDAQ:AAPL) needs to make its presence felt in emerging markets such as India and China, and a mid-range iPhone would help its cause. The smartphone behemoth has reportedly been in talks with China Mobile Ltd. (ADR) (NYSE:CHL) and as the telecom carrier prepares to launch its 4G LTE network this year, the presence of a cheaper iPhone would help spur adoption.
According to China Daily, China Mobile Ltd. (ADR) (NYSE:CHL) is expected to allocate more than half of its $30.5 billion capital outlay this year toward its 4G rollout, and a deal with Apple Inc. (NASDAQ:AAPL) will benefit both parties.
Ming-Chi Kuo of KGI Securities (via Business Insider) believes that China Mobile and Apple’s cheaper iPhone together will enhance penetration of LTE in the country. Morgan Stanley analyst Katy Huberty is of the opinion that Apple Inc. (NASDAQ:AAPL) would gain six points in market share in China with a cheaper iPhone.
All these possible developments bode well for Avago as it will be able to sell more of its chips if it manages to find a place inside the budget iPhone. In addition, Avago also counts Samsung as a customer, and it stated over the previous conference call that the Korean giant is ramping up production of its next-generation platform.
The wireless market accounts for 45% of Avago’s overall revenue, and with clients such as Apple Inc. (NASDAQ:AAPL) and Samsung, robust growth can be expected in this segment.
In the wired infrastructure market, which contributed 31% of Avago’s revenue in the previous quarter and grew 17% from the year-ago period, the prospects look good. Avago is finally seeing demand from enterprise customers pick up. Increased data-center spending pushed up demand for its 10G and 40G optical products.