Broadcom Inc.

The stable outlook reflects our expectation that consistent cash flow from Broadcom's legacy semiconductor franchise and contribution from recently acquired software assets will maintain leverage under 3.5x despite top-line weakness and deteriorating handset sales. Although we believe the firm is capable of further deleveraging, we expect management will remain highly acquisitive and believe sustained leverage under 2.5x would be unlikely. Large debt-funded acquisition or shareholder returns that would keep leverage above 3.5x would result in a downgrade. We would also consider lowering the rating if there is meaningful operational disruption from integration of Symantec or if a deeper than expected semiconductor industry downturn substantially reduces EBITDA and drives leverage above 3.5x. While highly unlikely over the coming year, we would

...We expect a sales mix shift toward relatively more visible and recurring software revenues to provide greater operating stability. The acquisitions of CA Technologies and Symantec's former enterprise security business significantly shifted the firm's revenue mix to approximately 30% software from essentially entirely semiconductors in fiscal 2019. We expect this to improve the stability of Broadcom Inc.'s operating performance, with these mature enterprise software businesses contributing a high share of recurring revenues and diversified customer bases. Nevertheless, we see some risk of disruption from the integration of Symantec and deployment of its products through CA's sales force. We continue to believe substantial and sustained margin expansion in the enterprise security software business will be challenging, given the highly fragmented and competitive industry landscape. Frequent debt-funded acquisitions have led to leverage spikes, but management has reliably repaid debt rapidly...

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