Broadcom Shows Huawei’s Ripple Effect

Broadcom shares slid in after-hours trading Thursday.


Photo:

mike blake/Reuters

As

Broadcom


AVGO 0.67%

showed Thursday, punishing

Huawei


002502 2.87%

also puts the hurt on many others.

One of the world’s largest chip makers, Broadcom also is among the most diversified. The company designs semiconductors used in telecommunications gear, wireless handsets, television sets and cable boxes, just to name a few areas. It also now has a software business that accounts for about one-quarter of its total revenue, thanks in large part to last year’s acquisition of CA Technologies.

But you can’t freeze out one of the world’s largest chip buyers without causing ripple effects. As part of its fiscal second-quarter report Thursday afternoon, Broadcom cut its revenue projection for the current fiscal year by about 8% to $22.5 billion. That amounts to about $2 billion in lost sales for the year.

Broadcom CEO Hock Tan noted in a call with analysts that Huawei accounted for only around $900 million of direct sales last year. But Huawei also is a major buyer across the technology supply chain, so the company’s situation has an impact on other companies that buy from Broadcom. The broader uncertainty of the moment has caused “compression” of the supply chain and prompted customers to run down inventories rather than place orders, Mr. Tan said.

That bodes ill for others in the semiconductor market. Because Broadcom’s fiscal quarter ended on May 5, the company is the first major chip maker to post numbers reflecting last month’s escalation of the trade conflict. Broadcom’s shares slid 8% in after-hours trading Thursday following the results, and several other major chip makers slipped as well.

Broadcom noted that, excluding Huawei, many of its other businesses are performing well. The company even secured a supply agreement with

Apple

that appears to have gained it some share with the next iPhone models. But Huawei has been selling even more smartphones than Apple does world-wide, and it has the world’s largest share of the network-equipment market to boot. For chip suppliers, that’s an awfully big wallet to zip shut.

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