Chipmaker and infrastructure software program supplier Broadcom (AVGO) on Thursday beat Wall Avenue’s targets for its fiscal second quarter and confirmed a deal to purchase VMware (VMW). Broadcom inventory rose on the information.
San Jose, Calif.-based Broadcom earned an adjusted $9.07 a share on gross sales of $8.1 billion within the quarter ended Could 1. Analysts polled by FactSet predicted Broadcom earnings of $8.72 a share on gross sales of $7.91 billion. On a year-over-year foundation, Broadcom earnings elevated 37% whereas gross sales superior 23%.
For the present quarter, Broadcom forecast income of $8.4 billion, topping Wall Avenue’s estimate of $8 billion.
Broadcom additionally mentioned it agreed to amass VMware for about $61 billion in money and inventory. Information of the acquisition leaked on Sunday.
Broadcom Inventory Rises
In afternoon buying and selling on the inventory market at this time, Broadcom inventory rose 4.2% to 554.10. VMware inventory climbed 4% to 125.33.
“Broadcom’s second-quarter income accelerated sequentially, and was pushed by power in networking and server storage,” Chief Government Hock Tan mentioned in a information launch. “We anticipate this momentum to proceed into the third quarter.”
Semiconductor merchandise accounted for 77% of Broadcom’s income within the second quarter. Infrastructure software program contributed 23% of gross sales.
With the addition of VMware, Broadcom’s software program gross sales are predicted to achieve 49% of complete firm income. Palo Alto, Calif.-based VMware offers cloud computing administration, infrastructure, networking, safety, and digital workspaces.
Broadcom Pays 44% Premium For VMware
Beneath phrases of the acquisition settlement, VMware shareholders will elect to obtain both $142.50 in money or 0.252 shares of Broadcom inventory for every VMware share. The shareholder election can be topic to proration, leading to 50% of VMware’s shares being exchanged for money and 50% being exchanged for Broadcom inventory.
Primarily based on the closing worth of Broadcom inventory on Wednesday, the full $138.23 per-share consideration represents a 44% premium to the closing worth of VMware inventory on Could 20, the final buying and selling day previous to media hypothesis concerning a possible transaction.
As soon as the deal is accomplished, present Broadcom shareholders will personal 88% of the mixed firm and VMware shareholders will personal the remaining 12%. The businesses anticipate the transaction to shut in Broadcom’s fiscal 2023.
Comply with Patrick Seitz on Twitter at @IBD_PSeitz for extra tales on client expertise, software program and semiconductor shares.
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