US-China Trade War Has Customers Feeling ‘Very, Very Nervous,’ Says Broadcom CEO

Broadcom expects its semiconductor business to take a $2 billion revenue hit from the U.S.-China trade war, including the Trump administration's "Huawei export ban,” said CEO Hock Tan on a fiscal Q2 call. The stock closed 5.6 percent lower Friday at $265.93. The trade frictions are “creating economic and political uncertainty and reducing visibility for our global OEM customers,” he said. “Demand volatility has increased and our customers are actively reducing inventory levels to manage risks.” The $17.5 billion in semiconductor revenue Broadcom now expects in the fiscal year ending in November will mean a year-over-year decline in the high-single digits, said Tan. On Broadcom’s previous earnings call in March, Tan had said he was “confident” the semiconductor business would “resume very meaningful growth” in the fiscal second half and record $19.5 billion in sales. Huawei generated about $900 million of revenue for Broadcom last year, but the market softness that prompted the company to shave $2 billion off its semiconductor revenue forecast “obviously extends beyond just one particular customer,” said Tan Thursday, in Q&A. “We're talking about uncertainty in our marketplace,” and that’s causing “compression” in the supply chain that’s reducing orders, he said. “It's broad-based.” With the revised forecast, “we tried to capture everything” in the business “environment,” including the impact of the proposed List 4 tariffs on Chinese goods, said Tan. The environment “is very, very nervous, and that's why we see a very, very sharp and rapid contraction of the supply chain and orders out there from our customers,” he said.