Techinsidr.com - Broadcom Equity Research

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Analyst Report | April 19, 2011 | Symbol: BRCM Broadcom Corporation Techinsidr.com This report is for i nformat ion purposes only and should not be considered a solicitation to buy or sell any security. Neither Techins idr.com nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of Techinsidr.com All rights reserved. Techinsidr Recommendation: Buy Current Price: $38.19 (As of Apr 19, 2011) 12-Mo Price Target : $46.00 Investment Style: Large-Cap Tech Sector: Technology  Industry: Semiconductor Devices Summary: Broadcom Corporation is a provider of semiconductor for wired and wireless communica tions. Broadcom products enable the delivery of voice, video, data and multimedia to and throughout the home, the office and the mobile environment. The company provides a range of system-on-a-chip (SoC), and software solutions to manufacturers of computing and networking equipment, digital entertainment and broadband access products, and mobile devices.  Key Statistics (Source: WSJ, Yahoo Finance) 52-Wk Range: $47.39 29.05 Market Capitalization(B) $20.59 Outstanding Shares(M) 538.7 10K Invested 5 Yrs Ago: $8758 Current P/E Ratio 19.24 Institutional Ownership 88.7% 12-Month Trailing EPS 1.99 Forward P/E (FYE Dec 31,2012)  12.53 Insider Ownership 0.29% Annual EPS Estimate 2.77 Beta 1.26 Dividend & Yield 0.36 (0.90%) Stock Performance Key Metrics x Stock Performance Price Change 3 Mo. -17.6% 1 Yr. 9.1% Growth (%) Revenues Net Income EPS x Margin Analysis Gross Margin Operating Margin Last Qtr. 44.8 349.6 327 50.8% 13.7% 12 Mo. 51.8 1556 1709 51.8% 15.8% X  Recent Acquisitions x 03/2011 - Provigent Ltd. $313M in cash SoC solutions for wireless reception and transmission 11/2010 - Gigle Networks $75M in cash Multimedia home networking 10/2010 - Beceem Communication $316M in cash 4G LTE/WiMax expertise 06/2010 - Innovision Research & Technology plc $47.5M in cash Near field communication expertise and IP 02/2010 Teknovus $123M in cash Ethernet Passive Optical Network (EPON) chipsets and software Recent Highlights  Broadcom had a strong year in 2010 and delivered a record revenue performance ($6.82B), which was a 51.8% increase year over year.  Strong sales growth in mobile products was the key driver for Broadcom’s solid financials. Broadcom secured key design wins in hot consumer electr onic devices like the iPad 2.  Growth through acquisitions remained one of Broadcom ’s key focus areas in 2010. The company made four deals totaling $561M. Successfully integratin g these acquisitions will be a key challenge for management going forward.  4G and LTE infrastructure build out are a crucial component to the company’s long-term success. Several strategic acquisitions posi tion Broadcom to make more inr oads into this market.

Transcript of Techinsidr.com - Broadcom Equity Research

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Analyst Report | April 19, 2011 | Symbol: BRCM

Broadcom Corporation Techinsidr.com 

This report is for i nformation purposes only and should not be considered a solicitation to buy or sell any security. Neither Techinsidr.com nor any other party guarantees its accuracy or makes warrantiesregarding results from its usage. Redistribution is prohibited without the express written consent of Techinsidr.com All rights reserved.

Techinsidr Recommendation: Buy Current Price:

$38.19 (As of Apr 19, 2011) 

12-Mo Price Target:

$46.00

Investment Style:

Large-Cap Tech

Sector:

Technology 

Industry:

Semiconductor Devices

Summary: Broadcom Corporation is a provider of semiconductor for wired and wireless

communications. Broadcom products enable the delivery of voice, video, data and multimed

to and throughout the home, the office and the mobile environment. The company provide

range of system-on-a-chip (SoC), and software solutions to manufacturers of computing and

networking equipment, digital entertainment and broadband access products, and mobile

devices. 

Key Statistics (Source: WSJ, Yahoo Finance) 

52-Wk Range: $47.39 – 29.05 Market Capitalization(B) $20.59 Outstanding Shares(M) 53

10K Invested 5 Yrs Ago: $8758 Current P/E Ratio 19.24 Institutional Ownership 88.

12-Month Trailing EPS 1.99 Forward P/E (FYE Dec 31,2012)  12.53 Insider Ownership 0.2

Annual EPS Estimate 2.77 Beta 1.26 Dividend & Yield 0.36 (0.90

Stock Performance Key Metrics

x

Stock Performance

Price Change

3 Mo.

-17.6%

1

9.

Growth (%)

Revenues

Net Income

EPSx Margin Analysis 

Gross Margin

Operating Margin

Last

Qtr.

44.8

349.6

327

50.8%

13.7%

12

51

15

17

51

15X

 Recent Acquisitions x 03/2011 - Provigent Ltd. $313M in cash

SoC solutions for wireless reception and 

transmission 

11/2010 - Gigle Networks$75M in cash

Multimedia home networking

10/2010 - Beceem Communication $316M in cash

4G LTE/WiMax expertise

06/2010 - Innovision Research &

Technology plc $47.5M in cash

Near field communication expertise and

02/2010 – Teknovus$123M in cash

Ethernet Passive Optical Network (EPON

chipsets and software

Recent Highlights

 Broadcom had a strong year in 2010 and delivered a record revenue performance

($6.82B), which was a 51.8% increase year over year.

 Strong sales growth in mobile products was the key driver for Broadcom’s solid

financials. Broadcom secured key design wins in hot consumer electronic devices like

the iPad 2.

 Growth through acquisitions remained one of Broadcom’s key focus areas in 2010. The

company made four deals totaling $561M. Successfully integrating these acquisitions

will be a key challenge for management going forward.

 4G and LTE infrastructure build out are a crucial component to the company’s long-term

success. Several strategic acquisitions position Broadcom to make more inroads into

this market.

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Analyst Report | April 19, 2011 | Symbol: BRCM

Broadcom Corporation Techinsidr.com 

This report is for i nformation purposes only and should not be considered a solicitation to buy or sell any security. Neither Techinsidr.com nor any other party guarantees its accuracy or makes warrantiesregarding results from its usage. Redistribution is prohibited without the express written consent of Techinsidr.com All rights reserved.

Revenue Breakdown  Key Competitors QUALCOMM Corporation (QCOM) The leading fabless semiconductor 

company. Occupies one of the top

 positions in the lucrative mobile phone

market. 

Marvell Technology Group (MRVL) Direct competitor. Major supplier of SoC 

solutions used in mobile phones, HDDs, an

wireless LAN equipment. 

Texas Instruments Inc (TXN) One of the largest semiconductors. Key 

 focus areas include HDTVs, projectors, and

mobile phones.

STMicroelectronics (STM)Most direct competitor. Produces the

same products as BRCM, including mobile

 phones, set top boxes, and networking.

Conexant Systems (CNXT) Smaller competitor, but one of BRCM’s

main competitors in set-top boxes for TV’s

and digital cable boxes.

Business Segment Analysis

Broadcom delivered strong revenue growth in 2010, accumulating $6.81B in revenue during the fiscal year. The

revenue was split among the 4 key business segments that Broadcom operates in. The mobile segment was the key

force behind Broadcom’s strong financial results. The surge in demand for smartphone and tablet wireless chips helped

boost their mobile revenues to record levels.

Mobile & Wireless Out of all the business segments, Mobile &

Wireless was the strongest performer. For the 2010 fiscal year, the

Mobile & Wireless group generated 42.4% of the total revenues.

Broadcom is one of the top providers of low, lower, high

performance, System-on-Chip solutions that power some of the most

popular smartphones and tablets. One key advantage is their

diversified set of mobile products. Since Broadcom can offer a

variety of different SoC solutions, it allows them to take up a greater

share of the overall bill-of-material or BOM cost.

Some of the latest design wins for Broadcom include the GPS / Wi-Fi chip for the Apple iPad 2. Mobile revenues are

expected to grow and Android Tablets could be another huge opportunity for Broadcom. As one of the top SoC

companies in the mobile space, I expect the Mobile & Wireless business to deliver strong results going forward in 2011.

Consumer demand has shifted from PC’s to mobile devices and Broadcom’s diversified SoC portfolio positions them for

strong upside ahead. I expect even more design wins ahead and I am anticipating at least $3.2B in mobile revenues for

2011.

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Analyst Report | April 19, 2011 | Symbol: BRCM

Broadcom Corporation Techinsidr.com 

This report is for i nformation purposes only and should not be considered a solicitation to buy or sell any security. Neither Techinsidr.com nor any other party guarantees its accuracy or makes warrantiesregarding results from its usage. Redistribution is prohibited without the express written consent of Techinsidr.com All rights reserved.

Broadband Communications Group This group is responsible for selling consumer-oriented broadband solutions.

Broadcom produces tiny chips that go inside products like set-top-boxes, media servers, residential gateways, home

networking, high definition TV platforms, Blu-ray Disc® players, and digital video recorders (DVRs). Broadcom enjoyed a

strong year from this business segment, booking $2.1B in revenue from these productscategories. Broadcom SoC technology powers some of hottest home networking products

from OEMs like Linksys and Netgear. The average consumer’s home is getting much more

digital and Broadcom is a key beneficiary of this movement. More consumers are making

the transition to HDTV and they are buying more advanced set top boxes as a result. Home

entertainment solutions remained popular amongst consumers who are looking to cut the

cord from cable and avoid spending $9.25 on movie tickets. The rise in popularity for

Internet-connected TV systems like the Boxee Box, Netflix Roku Player, and Google TV helped

drive Broadcom’s strong results in this segment. 

Infrastructure & Networking Broadcom’s corporate strategy hinges on a

steady infrastructure buildout for 4G, Wi-Max, and LTE. Some of their

key products include switches and physical layer devices, wide area and

storage networking, and high-speed controllers. The company’s

Infastructure & Networking group provides solutions for carriers, service

providers, enterprises, small-to-medium businesses and data centers. for

network infrastructure needs. The company offers a range of switches,

controllers, copper transceivers, and security processors. Some of 

Broadcom’s key clients in this segment include Dell, C isco, Apple, HP, Motorola, Netgear, and Samsung. Their wide

portfolio of wireless and wired solutions allows Broadcom to establish strategic relationships with some of the premiertech companies. With the large scale 4G / LTE buildout gaining momentum, Broadcom stands to benefit in this space.

Recent Merger & Acquisition Analysis

Acquisitions are an integral part of Broadcom’s strategy to grow revenues and expand into new business segments.

Broadcom recently closed a $313M acquisition of Israeli chipmaker Provigent Ltd. This move will help Broadcom expand

its portfolio and move into the $5B microwave backhaul equipment business. In 2010, Broadcom completed four

acquisitions totaling $561M.

A notable acquisition is the purchase of NFC upstart Innovision Research & Technology plc. This move provides

Broadcom inroads into the hot NFC market with the likes of NXP Semiconductors and Qualcomm Inc. If Broadcom can

integrate quickly and accelerate their NFC roadmap, it gives them a chance to be a first mover in this lucrative market.

Although they tend to fly under the radar in this area, Broadcom does have a viable NFC solution in their pipeline.

If Broadcom can deliver a compelling NFC product to the market before Qualcomm and NXPI, it will be a huge

incremental growth catalyst to their mobile business.

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Analyst Report | April 19, 2011 | Symbol: BRCM

Broadcom Corporation Techinsidr.com 

This report is for i nformation purposes only and should not be considered a solicitation to buy or sell any security. Neither Techinsidr.com nor any other party guarantees its accuracy or makes warrantiesregarding results from its usage. Redistribution is prohibited without the express written consent of Techinsidr.com All rights reserved.

Risk Factors

Broadcom is the second ranked fabless semiconductor in terms of revenue, but competition in this sector is very stiff.

Although the company ranks 1 or 2 in terms of market share for each of their respective markets, they face steady

competition from rivals like Qualcomm and STMicroelectronics. Due to their broad and diverse product portfolio,

Broadcom faces constant competitive threats in many different markets from both small and large competitors.

Another risk factor is the growing operating expenses that caught Wall Street by surprise in Q4 2010. A rise in stock

based compensation expenses dragged on Broadcom’s earnings in Q4 and are expected to continue in 2011. If 

Broadcom does not exercise tighter managerial control over these costs, higher op-ex will continue to dilute EPS.

Analysis and Recommendation

Broadcom delivered strong results in 2010 and I look for this trend to continue as the market for mobile and SoC

solutions continues to accelerate. Competition is stiff, particularly from Qualcomm and STMicroelectronics, but even

with the tough competition I expect Broadcom to deliver year in 2011. Their expansive portfolio of System-on-Chip

solutions gives them a unique competitive advantage that other companies in this sector cannot match.

An aggressive approach to acquisitions is a key strength for the Broadcom, but successfully integrating these companies

will remain a challenge. Even though integrating these pieces will be difficult, I think Broadcom has taken the right

approach by using this aggressive “growth by acquisition” strategy.

Strong sales of multi-functional wireless chips (Wifi/Bluetooth/GPS) will continue to drive additional revenue growth in

the years ahead. If Broadcom can successfully integrate a NFC chip into this package, it will be a big growth catalyst for

the company. Given all these factors, I maintain that Broadcom (BRCM) is a Buy.

BRCM shares have underperformed major indexes and lagged behind their competitors so far in 2011, but I still view

Broadcom as one of the premier companies in their industry. Broadcom has steadily grown their market share and they

should continue to outpace their industry peers over the next few years.