Avago's gap-up gain, in modest volume, positions shares for a test of resistance at their 50-day moving average. The stock has been trading below that line since a strong-volume tumble on April 24. The stock had pulled back nearly 16% since March 23. It is in the seventh week of a possible late-stage base.
Avago is a leading supplier of radio frequency chips used in smartphones, including iPhones and Galaxys. It has recently received high marks from analysts due to its position in the buildout of China's new high-speed wireless 4G LTE network.
Once a chipmaking unit of Hewlett-Packard (NYSE:HPQ), Avago was carved in a $2.7 billion deal from Agilent Technologies (NYSE:A)in 2005. The company has diversified via acquisitions, reaching into the storage chip market in its $6.6 billion acquisition of LSI last year. It expanded its enterprise and data center offerings with its $309 million deal for PLX Technologies. Combined, the two deals more than doubled Avago's revenue.
Enterprise storage is the focus of the Emulex deal. The Costa Mesa, Calif.-company develops software and gear related to network connectivity, monitoring and management. The company reported $96 million in revenue during the first quarter, and revenue of $311.2 million for the nine months ended in March. Gross margins were nearly 68%, and the company held $203 million in cash.
Avago's earnings per share rose 70% from $2.89 in 2013 to $4.90 last year. Analyst consensus calls for a 72% gain this year, not including Emulex.
Avago expects Emulex to add immediately to earnings.
Among other non-U.S. based chipmakers, ARM Holdings (NASDAQ:ARMH), NXP Semiconductors (NASDAQ:NXPI) and Mellanox Technologies (NASDAQ:MLNX) all rose 2% in light trade Monday.
ARM Holdings is below a 54.92 buy point in a first-stage, cup-with-handle base.
NXP is in the seventh week of a flat base, with a 108.60 buy point.