Chipmaker and infrastructure software provider Broadcom on Thursday beat Wall Street's targets for its fiscal second quarter and confirmed a deal to buy VMware. Broadcom stock rose on the news.
San Jose, Calif.-based Broadcom earned an adjusted $9.07 a share on sales of $8.1 billion in the quarter ended May 1. Analysts polled by FactSet predicted Broadcom earnings of $8.72 a share on sales of $7.91 billion. On a year-over-year basis, Broadcom earnings increased 37% while sales advanced 23%.
For the current quarter, Broadcom forecast revenue of $8.4 billion, topping Wall Street's estimate of $8 billion.
Broadcom also said it agreed to acquire VMware for about $61 billion in cash and stock. News of the acquisition leaked on Sunday.
Broadcom Stock Rises
On the stock market today, Broadcom stock rose 3.6% to 550.66. VMware stock climbed 3.2% to 124.36.
"Broadcom's second-quarter revenue accelerated sequentially, and was driven by strength in networking and server storage," Chief Executive Hock Tan said in a news release. "We expect this momentum to continue into the third quarter."
Semiconductor products accounted for 77% of Broadcom's revenue in the second quarter. Infrastructure software contributed 23% of sales.
With the addition of VMware, Broadcom's software sales are predicted to reach 49% of total company revenue. Palo Alto, Calif.-based VMware provides cloud computing management, infrastructure, networking, security, and digital workspaces.
Broadcom Pays 44% Premium For VMware
Under terms of the purchase agreement, VMware shareholders will elect to receive either $142.50 in cash or 0.252 shares of Broadcom stock for each VMware share. The shareholder election will be subject to proration, resulting in 50% of VMware's shares being exchanged for cash and 50% being exchanged for Broadcom stock.
Based on the closing price of Broadcom stock on Wednesday, the total $138.23 per-share consideration represents a 44% premium to the closing price of VMware stock on May 20, the last trading day prior to media speculation regarding a potential transaction.
Once the deal is completed, current Broadcom shareholders will own 88% of the combined company and VMware shareholders will own the remaining 12%. The companies expect the transaction to close in Broadcom's fiscal 2023.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
