Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (45044)	10/8/2008 10:15:11 PM
From: Johnny Canuck	Read Replies (1) \| Respond to of 71002

Finding the Upside with Broadcom by: Steve Murray posted on: September 01, 2008 \| about stocks: AAPL / BRCM / MOT / NTGR Font Size: PrintEmail “Connecting Everything” is a perfect company slogan for a company which has been doing just that. Broadcom (BRCM), a semiconductor company based in Irvine, CA, has had explosive growth recently. Many of its products are regarded as parts of the wireless and multi-face future. Its low-cost, high-speed multi-functioning “system-on-a-chip” semiconductors and the software that combines voice, video, data, and multimedia applications are best-of-breed in the industry. In addition, Broadcom has contracts with other highly regarded computer companies such as Apple (AAPL), Alcatel (ALU), Cisco (CSCO), Dell (DELL), EchoStar (SATS), HP (HPQ), IBM (IBM), LG, Nintendo (NTDOY.PK), Nokia (NOK), Nortel Networks (NT), Pace, Samsung and many others. Although they have a lot of contracts with these big name companies, they also do a lot of business with smaller companies. In 2007, the leading five customers accounted for about 40% of total revenue. Guiding the Future Broadcom is moving quickly to enter the digital television industry. This past Monday, it announced that it will buy Advanced Micro Devices’ (AMD) digital television chip business for $192.8 million in cash. This move comes ahead of the FCC’s new regulation on broadcasting companies in which they will be forced to broadcast only in digital on February 17th. Since the division wasn’t a main part of AMD’s business, the company was unable to monopolize on it. Broadcom believes it will be able to churn a profit in this business relatively soon. Apple’s Contract One of Broadcom’s most famous products is the touch-screen controller chip which is behind Apple’s (AAPL) iPhone. But Broadcom also provides Apple’s iPhone with its newly introduced GPS navigation chip. Indirect exposure to the industry’s new hottest smart phone, which has now been cleared for use in major corporations for business email, is yet another huge growth driver going forward. Core Businesses Broadcom also provides chips to Motorola’s (MOT) cable set-top boxes as well as wireless routers sold by Netgear (NTGR). Within the past few years, Broadcom has landed many deals with some of the trendiest technologies including Blu-ray, Wi-Fi, Bluetooth, and digital TV. All of these products have high growth potential in the next few years. Blu-ray recently won the high definition DVD battle against HD-DVD, as the quality of Blu-ray is significantly better than HD-DVD. I continue to believe that Bluetooth technology is a great place to be now, as many wireless headsets have moved towards this technology. Many venture capitalists are funding and starting up companies that are working on creating a domestic U.S. Wi-Fi network, which will provide wireless access across the entire United States. I believe that digital television and high-definition services will soon take over the cable industry, as customers will be forced to upgrade by the FCC in February of 2009. All of Broadcom’s high-growth segments seem to be well positioned to take apart of these new technology developments. Financial Results Broadcom’s high growth products boosted its revenue 30% and beat analyst expectations for the second quarter. Earnings rose by over 200% if you exclude acquisition related items and one time items. Its mobile and wireless business posted a 50% gain in revenue year-over-year. After its earnings report, analysts have raised their earnings estimates. “They are in the right markets with the right products,” says Daniel Berenbaum, communications semiconductor analyst at Cowen & Co. “You have to like that and you have to like a company that has executed so well.” Broadcom currently trades with a beta of 2.5, which is a little high compared to the broader industry. However, at $24 a share and a market cap of $16 billion, Broadcom seems like a steal as it trades at a forward P/E of less than 15 compared to a trailing P/E of over 40. Analysts are estimating that the company's revenues will increase by 27% in 2008 and 17% in 2009 due to robust end-market demand for its communication offerings. Gross margins should also narrow to around 51% in 2009 from an anticipated 52% in 2008 as sales will move to lower-margin products. EPS is expected to grow to $0.94 in 2009 from an estimate of $0.80 in 2008. Also, some analysts have their price target in the range of $35-38, but I would have to lean more towards the $30-33 range looking out 6-12 months. Look for the stock to pop in the near future from contracts landed from new digital television contracts. Disclosure: The author of this article is long BRCM. [Johnny: Amazing how expectations change in the current environment.]