Broadcom Inc.

The stable outlook reflects our expectation that consistent cash flow from Broadcom's legacy semiconductor franchise and contribution from 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 is unlikely. A large debt-funded acquisition or shareholder returns that keep leverage above 3.5x would result in a downgrade. We would also consider lowering the rating if there is a meaningful operational disruption from the integration of future acquisitions or if a deep and rapid semiconductor industry downturn substantially reduces EBITDA and drives leverage above 3.5x. While highly unlikely over the coming year, we would

...We expect the sales mix shift toward more visible and recurring software revenues will provide greater operating stability. The acquisitions of CA Technologies and Symantec's former enterprise security business significantly shifted the firm's revenue mix to just under 30% software from essentially entirely semiconductors. This mix change has dampened the cyclicality of Broadcom Inc.'s operating performance, providing stability during the weak semiconductor market in 2019 and offsetting some of the industry recovery in late 2020. These mature enterprise software businesses contribute a high share of recurring revenues and more diversified customer bases than the legacy semiconductor franchise, which we consider a positive credit factor. We expect Broadcom to continue to seek to acquire enterprise software businesses, further improving visibility into future results. Nevertheless, we do see execution risk from further integrations and a risk that Broadcom might be under-investing in software...

Full Report