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Technology Stocks : Broadcom (BRCM) -- Ignore unavailable to you. Want to Upgrade?

To: Immi who wrote (6423)	8/14/2003 2:43:03 AM
From: A. Edwards	Read Replies (2) \| Respond to of 6531

Merrill Lynch reinstates a SELL rating on BRCM: 8/14/03 Morning Call: We are reinstating research coverage of BRCM with a SELL (3) rating. We are establishing 2003 revenue estimate of $1.53 billion and EPS estimate of $0.41. For 2004, we are establishing revenue estimate of $1.67 billion and EPS estimate of $0.51. BRCM is the dominant enterprise networking IC vendor and we expect the company to benefit from gigabit Ethernet and WLAN adoption over the intermediate term. However, we believe BRCM will lose significant market share in server chipsets in 2H04 due to delays in new product introduction. Also, we do not see meaningful opportunities for the company in this market in 2005. We also believe Broadcom will face increased competition in the wireless LAN and cable STB markets over the intermediate term. At $22 per share, BRCM is currently trading at 3.8x our 2004 estimates on an EV/Sales basis, which is at a slight discount to its peers. On a P/E basis, the stock is trading at 44x our 2004 EPS estimate, which is at a premium to its peers. We believe that these multiples are unwarranted given the declining growth prospects and competitive issues over the intermediate term. Our ROOC model suggests a mid cycle theoretical fair value of $14 for the stock. We believe that BRCM’s risk reward profile is unfavorable over the intermediate term. Risks to our rating include 1) delayed server chipset launch by Intel 2) faster than expected IT spending recovery 3) higher than expected growth in the WLAN market.