Is Broadcom About To Turnaround?

| About: Broadcom Limited (AVGO)


Broadcom has seen some weakness in recent quarters and the company’s revenue is expected to drop on a year over year basis in the first quarter.

But Broadcom is seeing strong opportunity in different end markets such as mobile, set-top boxes, and data centers that could drive its growth.

Broadcom is also focusing on product development to land more customers and benefit from growth in different areas.

Chipmaker Broadcom (BRCM) hasn't set the market on fire this year, but the company will try to set the record straight when it comes out with its first-quarter results in a couple of weeks. In this article, we will take a look at what's expected of Broadcom and whether it can be a solid performer in the long run.

Analysts' expectations

Analysts expect Broadcom to report revenue of $1.96 billion in the first quarter, down 2.40% from the year-ago quarter. Since Broadcom itself had guided for revenue between $1.9 billion and $2 billion, it shouldn't have much difficulty in meeting the revenue estimate.

On the other hand, Broadcom's earnings are expected to decline to $0.45 per share from $0.65 per share in the year-ago quarter. Broadcom has struggled of late due to a lack of solid design wins, which is why a drop in revenue and earnings is expected. But things can get better going forward due to a variety of moves that Broadcom is making. Let's take a look at them.

Growth drivers

Broadcom is setting the stage for ultra HD in the consumer market and is leading the industry with best-in-class HEVC-enabled products across its set top box franchise. Broadcom has also recorded share gains in PON (passive optical networks) and small cells, and its data center business is also gaining popularity driven by the ramp up of the industry-leading Trident II Ethernet switch. The roll out of LTE across the globe and the increase in richer connectivity content, including 5G Wi-Fi and MIMO technologies, as well as low-power integrated connectivity for wearables and the Internet of Things are solid tailwinds for Broadcom.

Broadcom is targeting to broaden its footprint with new operators in new regions in the developing markets, and is firmly committed to deploying ultra HD in the developed markets. There is a strong interest of operators in HEVC, which doubles the capacity of existing networks, paving the path for gains in ultra HD broadcast.

Content providers are also targeting the FIFA World Cup and Olympics for ultra HD content deployment. This is supported by the falling prices of ultra HD TVs, which are now more affordable, with 50-inch ultra HD TV prices now below $1,000.

To target this market, Broadcom has announced the industry's first set top box SoC for ultra HD and HEVC and is currently sampling multiple HEVC solutions for satellite, cable, and IP set top box deployments. The upgraded HEVC and ultra HD, coupled with continued growth in the number of tuners and transcoding streams in next generation set top box platforms, should lead to continued content growth and aid Broadcom's rise.

In addition, Broadcom is focusing on innovation and execution for broadband access. It recently announced a new entry-level DSL SoC for residential gateways that delivers higher data rates while reducing CPE costs.

Data center and mobile growth

Broadcom's data center business is growing at a solid rate. In the fourth-quarter, data center revenue was up 50% year over year, with the trend expected to continue going forward. Broadcom's data center business is at record levels, generating roughly a third of its infrastructure sales. Being in the early stages of the Trident II switch ramp, Broadcom's performance in the data center market should improve further.

The LTE rollout in China has also provided solid momentum to Broadcom's multicore processor business. The multicore processor business is expected to continue growing in 2014, based on strength in LTE deployments as well as the continued ramp up of 40-nm XLP products.

There is a healthy momentum building up in LTE for cellular SoCs. Broadcom's CAT4 dual core LTE SoC has started shipping, while the quad core LTE SoC would be sampled in the first half of this yea r. The CAT6 LTE advanced thin modem is expected to be sampled by the middle of the year. Thus, Broadcom is making some really good moves in the LTE business that should aid its long-term growth.

In the connectivity segment, Broadcom is focused on driving its technology into tablets and smartphones. The broadening adoption of its 2x2 MIMO technology across multiple classes of devices illustrates the penetration of new connectivity features 2014.

In addition, the continued penetration of 5G Wi-Fi, as well as other differentiating connectivity features most likely to be available in the market over the next 12 to 18 months further enhance Broadcom's prospects. Moreover, Broadcom has a differentiating factor with smaller, lower power, and higher performance connectivity solutions than competitors.


Broadcom seems to be getting better, slowly but surely. After enduring some difficult times, the chipmaker sees strong opportunity ahead in data centers, the Internet of Things, the mobile market, set-top boxes, etc. Moreover, at just 11 times forward earnings, Broadcom seems like a good investment option going into the earnings.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.