Broadcom’s Future Look Bright Heading Into Earnings
Defying the economic slowdown, Broadcom exceeded the billion revenue mark for the first time in Q3 2012 and reported record cash flow of 1 million from operations. It saw strong growth in all three businesses – connectivity & baseband, network solutions and broadband – with the mobile and wireless segment posting the fastest growth on strong demand for connectivity solutions. The third quarter has historically been the strongest quarter for Broadcom as its customers build up inventory to meet demand during the holiday season.
Broadcom is set to announce its Q4 earnings Tuesday, January 29. Owing to seasonal factors and macro weakness, the company estimates a slight decline in its revenue. Though Broadcom’s growth slowed down in 2012 due to macro headwinds, we forecast a higher growth rate 2013 onward. With a robust product road map and accelerating design wins, we believe that Broadcom has strong fundamentals to support a higher valuation.
Growing Strength In 3G & Higher Penetration Of 5G Wi-Fi
Backed by strong demand for connectivity solutions and continued growth in the 3G baseband business, Broadcom’s mobile and wireless division registered robust growth in Q3 2012. Broadcom reported record earnings of .02 billion from its mobile and wireless division, primarily on account of solid growth in wireless connectivity, which grew faster than the overall mobile and wireless business. A better product mix and expanding geographic footprint helped Broadcom gain additional share in the wireless market.
Broadcom’s 3G business strengthened with the ramp up of 40 nm platform and the ramp up of 5G wi-fi across multiple device categories increased the number of orders for its 5G wi-fi solutions to over 0 million.
The smartphone business constitutes the majority of Broadcom‘s connectivity business. In its last earnings call transcript, Broadcom declared that some of its customers will ramp a higher number of mid-range and higher-end smartphones with its dual-core products in the coming quarters. However, it did not expect any material contribution from the same in Q4.
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With a majority share in the mobile wireless market, Broadcom is the undisputed leader in mobile phones and tablets. We believe that with the increasing adoption of dual-band wi-fi and its growing strength in 5G wi-fi, GPS and NFC, Broadcom will manage to retain its foothold in the wireless market. Last week, Broadcom licensed the ARMv7 and ARMv8 chip architectures that enables the company to build its own application processor based on leading ARM technology.