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California based Broadcom (NASDAQ: BRCM) had a fairly good run in 2012. The Fortune 500 Company is an international semiconductor leader for wired and wireless communications. It supplies chips for everything from smartphones to cable boxes. It is also the principal supplier of chips for Apple’s (NASDAQ: AAPL) madly popular iPhone series. The business boasts a healthy product, cycle-driven strength that is a stand out among myriad competitors in a soft chip market. Additionally, for the first time in company history, Broadcom enjoyed over $2 billion in 2012 third quarter revenue.
The company provided a rock-solid third quarter to investors largely due to Apples success in the iPhone market. It is also benefitting greatly from its relationship with Samsung’s Galaxy products. Growth was up 14%, in all aread, not just in the large mobile wireless field. Net revenue was $2.13 billion. Net income was $220 million or $.38 per share compared with net income in the second quarter $160 million or $.28 a share. Broadcom’s strengths can be seen in a multitude of areas, such as its revenue increase, solid economic position with not unreasonable debt levels, a tidy cash flow from business operations, and ever expanding profit margins.
In 2011 Broadcom posted third quarter profits of $270 million or $.48 per share. Gross product margin for Q3 2012 was reported to be 48.8% and cash flow from operations was reported to be $621 million. These are GAAP results. Non- GAAP product gross margin was 52.1% and diluted EPS were $0.79. The higher revenue was balanced by increased investment in research and development. Also there was an 11% increase in manufacturing outlay. Shareholders shouldn’t be overly concerned over the 11% increase because it is essential for the company to sustain research and development expenditures, especially with tough competition from the likes of Qualcomm (NASDAQ: QCOM) and Nvidia (NASDAQ: NVDA).
Broadcom expects a fourth quarter drop in revenue to around $1.95 billion to $2.1 billion. Management attributes the expected decline to anemic demand for chips used in computer data infrastructure. Even with the expected decline, Broadcom is expected to outpace its peers. The company does remarkably well in connectivity and that trend will likely continue in the fourth quarter. With the unveiling of a new Ethernet chip-set (Trident II 10G) in early 2013, fourth quarter revenue deficits should recover nicely by Q2 of 2013.
Traditionally, Broadcom’s approach has been to find a way into a market then build complimentary know-how to enhance its foothold with manufacturers. It appears to be a sound strategy. It works for them and investors seem satisfied with the method.
There is some question however, as to how long Broadcom can appreciably outgrow its markets, but no one seems excessively concerned over this. In fact the community sentiment is bullish right now, with stock trading at $34. Also with shares up over 15% this year the company is a pretty good-looking option for perspective bargain hunters. Another plus is that Broadcom has a very diverse portfolio that adds to its eye-catching appeal. This is worth a hard look for the long-term.
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