We're Positive on Broadcom

The earnings call featured a whirlwind of material updates from CEO Hock Tan, including two new reporting segments (semiconductor solutions and infrastructure software), the elimination of quarterly guidance (only annual), and a structural alteration of CA’s business model from one of perpetual licenses to a fully ratable subscription model to better compete with SaaS alternatives. On the whole, the focus on full-year forecasts in lieu of quarter-to-quarter variability is better in line with the longer-term view we take with Broadcom and its competitors, while we find the CA transformation intriguing. As we digest the full impact of these changes, our initial analysis of narrow-moat Broadcom’s color on its end markets and fiscal 2019 guidance leads us to reiterate our $300 fair value estimate. The shares rose 5% during after-hours trading, but we continue to see an attractive margin of safety.

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