Broadcom is sinking on European regulatory sentiment … what’s the long-term outlook for this stock?
U.S. chipmaker Broadcom (AVGO) is down a bit this morning, but up about 3% over the past 11 days. Bouncing off a low of $270.07, the equity is trading above $280 as of this writing.
This fluctuation represents a reverse of declines that started from a peak of $300 on September 12. That’s all as Broadcom slid consecutively down to its one-month low.
E.U. Pressure May Contribute to Downward Swing
Part of the negative activity can be attributed to European regulatory action.
Reports from sources like MarketWatch show how European agencies are restricting some of what the chipmaker can do in those markets. That includes inking exclusive agreements with telecom manufacturers and strategic alignment with flat-screen makers.
Reuters reports from Friday look closer at how the European Commission is deliberately challenging the firm with a probe into the company’s deal-making with customers.
These restrictions, according to reports, will be in effect until the EU can make a determination on Broadcom’s strategy and its impact on competition.
Larger decreases in Broadcom stock are sometimes attributed to the American ban on Huawei over the summer…
In June, CNN business reported the Huawei ban “stung” the firm. That resulted in an 8% drop in one morning. But Broadcom soon gained that back. It traded above $300 again on July 1 and July 25.
On September 11, the equity nearly reached gains of $300. In September 12 trading, it actually reached the $300 mark. As for the Huawei ban, the government backed off. Although in the interim, lawyers for various firms found some workarounds for the ban to help American firms weather the storm.
Moving Back Home
After the Commerce Department’s waffling on the restrictions, chipmakers generally seemed to rebound. But that’s not the only roadblock for Broadcom this year…
Further back in March, a deal to acquire Qualcomm fell apart after a presidential order prohibited it. Reports at the time suggested the president took that step based on concerns about national security. At the time, Broadcom was headquartered in Singapore.
Just a month later, the firm “moved back to the U.S.,” or, as Reuters called it, “redomiciled,” reversing a move to Singapore after acquisition by Avago in 2016. As some onlookers point out, this move would allow Broadcom to be in the business of acquiring U.S. companies. That’s often part of the playbook for a company of this size, in this market segment.
All this moving around confuses some investors. And the controversy over foreign holdings inflamed estimations of the major tech firm. And now Europe seems to be piling on.
With 52-week highs of $323.20, AVGO obviously has the ability to perform. But its pricing moving forward seems likely to hinge on not only market share, but the ire of regulators. How the company will defend itself on the geopolitical stage will likely also play a role.
As the age of 5G approaches, companies in the industry have to navigate a two-tier track, staying productive while escaping regulatory pressure.
Justin Stoltzfus writes for Lancaster Newspapers in Lancaster, PA, as well as numerous digital publications like Answerstock, Techopedia, Warrior Trading, and Breaking Modern. His finance reporting has been featured on Motley Fool, Mint.com, and other sites. Stoltzfus is a graduate of James Madison University in Harrisonburg, VA.