On Thursday, semiconductor giant Broadcom posted its underwhelming third-quarter financial results. On the bright side, the firm slightly beat analyst expectations and outpaced its year-on-year performance. Unfortunately, the corporation reaffirmed its earlier down financial projections for the fiscal year. Furthermore, its CEO Hock Tan noted a “sharp recovery” for the components sector wouldn’t happen anytime soon.

Broadcom’s Q3 2019 Earnings

Market experts believed Broadcom would make $5.52 billion with profits of $5.13 per share. But the company defied expectations and grossed $5.52 billion in revenue with earnings of $5.16 per share. Moreover, the firm increased its revenue by 9 percent from Q3 2018.

However, the company’s chief executive officer explained the firm’s improved revenue generation isn’t a sign of sector-wide resurgence. Tan attributed his corporation’s improved performance to a “seasonal uptick” associated with increased orders from a “large North American customer.” In other words, Broadcom made a lot of money selling phone parts to Apple ahead of the iPhone 11 launch.

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Outside of that short-term sales surge, Tan has a negative outlook on the semiconductor sector. In a statement, the executive said demand for electronics components has “bottomed out.” He also noted that, by all indications, a “sharp recovery” is not imminent. As such, he declined to adjust his FY2019 earnings forecast of $22.5 billion up after revising it down by $2 billion in July.

Why Broadcom has a Grim Financial Outlook

Despite its recent moves to diversify its offerings, Broadcom has a bleak financial outlook because of issues with its core business. Like the rest of the semiconductor industry, the corporation’s operations were thrown into disarray by the ongoing U.S.-China trade war.

For one thing, the company lost a significant chunk of revenue with the Trump administration forbidding American companies from doing business with Chinese telecom Huawei. As one of the world’s leading smartphone manufacturers, the Sino conglomerate represented $900 million of Broadcom’s sales last year.

Despite petitioning Washington for an exemption, the company hasn’t been able to sell components to its old client since May. As the federal government has indicated it’s not going to change its position on Huawei, Broadcom will have to adjust to permanently losing 16 percent of its income.

Besides, the Sino-American trade war has made the firm’s supply chain less cost-effective. As many of Broadcom’s clients assemble their devices in China, they have to pay more to bring their hardware to America. As a result, manufacturing demand has dropped off. Until the international trade conflict is resolved, the corporation won’t see its order numbers return to early 2018 levels.

Lastly, regulators from the U.S. government and the European Union are currently investigating the firm for antitrust violations. The Federal Trade Commission and the European Commission believe Broadcom has abused its market dominance to suppress competition. If found guilty, the semiconductor company could face billions of dollars in fines and forced changes to its business practices.

Until Broadcom resolves its duel antitrust investigations, its financial future will have a dark cloud hanging over it.

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