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

To: John Biddle who wrote (856)	2/15/1999 12:22:00 PM
From: Doughboy	Read Replies (1) \| Respond to of 6531

Re BRCM Profit margin I was concerned about the margin too, but if you look into the numbers a bit, it's actually a very good story. BRCM has a net margin of around 15%, but its gross margin is actually over 55%. Those are healthy numbers. I would expect that, as with most companies in fast growing industries, gross margin will fall but net margin will increase as SG&A will shrink in proportion to revenue. (I think that makes economic sense, since Gross Margin is Revenue minus COGS, and Net Margin is Gross Margin minus SG&A expenses.) Management has been very clear that gross margin will come under pressure from entry by other companies, but that they are right now most concerned with establishing market share before the big growth period occurs over the next 5 years. Those modest declines (analysts predict gross margin going from the current 57% to 50-52% in the next two years) won't significantly erode the bottom line because I expect that net profits will increase to over 20%. Comparable chipmakers in more mature markets (PMC-Sierra, Vitesse) have net margins in the 22-25% range, and that's where I see BRCM in a while. So IMO, don't let shrinking gross margins scare you off from this great, great company. Doughboy.