Broadcom Gaining Ground in Smartphone Market

Aug.18.08 | About: Broadcom Limited (AVGO)

Broadcom Corp. (BRCM), a supplier of integrated circuits for broadband communications, may, according to Barrons, see its stock spike as much as 40% higher from current levels as the chip-maker continues gaining share out of the “smartphone” market.

With the 3G cellular landscape continuously and rapidly evolving, Broadcom 3G solutions are playing an essential role in the mobile arena as more powerful connected devices and next generation handsets keep requiring a software platform that can keep pace with a persisting level of sophistication.

The cutting-edge chip maker has proven to be up to the task, by demonstrating support for the trendiest of technologies. Only last year, Broadcom developed a new processor allowing the integration of all key 3G cellular and mobile technologies onto a single chip, enabling in this way cell phone makers to build new 3G phones in more compact form factors with very long battery lives at a fraction of current costs:

They are in the right markets with the right products,” Cowen & Co analyst Daniel Berenbaum told Barron’s. “You have to like that and you have to like a company that has executed so well.

Berenbaum, notes Barron’s, rates the shares “outperform” and expects 10% revenue growth in fiscal ‘09 and 15% in 2010. He also sees free cash flow reaching over $1 billion by 2010, leading investors to pay 25 times free cash flow per share, thus putting the stock at almost $38 level.

Broadcom claims being ahead of its competitors, in terms of its ability to provide higher functionality-integration into a single chip. The company, which has been aggressively trying to get a greater share of the cell phone market for the past few years, aims at achieving a 10% - 15% market share in smartphones, compared with 2% now.

Broadcom shares closed at $27.46 on Friday.