Broadcom Limited: Mega Merger Is The Beginning Of A New Era In The Semiconductor Space
SevenSeas Investment Research • 82 Comments
SevenSeas Investment Research • 82 Comments
Will Avago Be A Rock In A Turbulent Semiconductor Sea?
Stephen Simpson, CFA • 10 Comments
Stephen Simpson, CFA • 10 Comments
Broadcom Still Undervalued, And With Cards To Play
Stephen Simpson, CFA
Stephen Simpson, CFA
Apr. 24, 2015, 2:03 PM
- Though the Nasdaq is up 0.7% thanks to market-pleasing earnings from Google, Microsoft, and Amazon, chip stocks (SOXX -2.1%) are adding to their Thursday losses after Freescale, Altera, Microsemi, and Maxim joined the ranks of chipmakers offering soft Q2 guidance; Texas Instruments, Xilinx, and Qualcomm did so on Wednesday afternoon.
- NXP (NXPI -4.3%), set to merge with Freescale in a cash/stock deal, is selling off ahead of its April 29 Q1 report. RF chipmakers Skyworks (SWKS -3.8%), Qorvo (QRVO -4.4%), and Avago (AVGO -5.2%) are also seeing steep declines.
- Other decliners include a slew of telecom/networking, microcontroller, and analog/mixed-signal chipmakers. The group includes Marvell (MRVL -3%), ON Semi (ON -6.9%), Atmel (ATML -3.3%), Cypress (CY -4%), Lattice (LSCC -3.9%), Semtech (SMTC -6.9%), Cavium (CAVM -6%), PMC-Sierra (PMCS -2.9%), InPhi (IPHI -3.8%), and Silicon Labs (SLAB -2.9%). Chip packaging/testing firm Amkor (AMKR -5.7%) is also off; its Q1 report arrives on Monday.
- As was the case with TI and Xilinx, soft telecom equipment chip demand was often blamed by those guiding light yesterday afternoon. Freescale (FSL -3.5%) stated it expects network processor division sales to be down Q/Q and RF (base station power amplifier) division sales to be flat. Microcontroller, automotive, and analog and sensor division sales are expected to rise.
- Altera (ALTR -3.3%) stated its "telecom and wireless business, and particularly our wireless business globally looks to be quite weak in [Q2], while the rest for our business will in aggregate be flat to slightly up." Regarding its Q1 miss, the company notes "Industrial, test, compute and storage, and to a lesser extent military, fell short of our forecast" (share loss to Xilinx?).
- Maxim reports seeing "broad-based softness in communications infrastructure demand" and soft industrial bookings to go with healthier mobile/auto demand. The Galaxy S6 appears to be giving a lift to Maxim's mobile sales.
- Chip ETFs: SMH, XSD, PSI, SOXL, USD, SOXS, SSG
Apr. 23, 2015, 12:20 PM
- While the Nasdaq is up 0.3%, chip stocks are selling off (SOXX -1.8%) after Texas Instruments, Xilinx, and Qualcomm all provided soft calendar Q2 guidance. TI and Xilinx also missed Q1 sales estimates, while Qualcomm beat.
- Decliners include Avago (AVGO -3.7%), Qorvo (QRVO -2.5%), Freescale (FSL -3%), STMicroelectronics (STM -3.6%), Atmel (ATML -2.3%), PMC-Sierra (PMCS -2.5%), Fairchild (FCS -2.2%), Cypress (CY -2.1%), Audience (ADNC -6.6%), IDT (IDTI -4.5%), Vishay (VSH -2.9%), AppliedMicro (AMCC -2.3%), and Cavium (CAVM -4.4%). NXP, ON Semi, Linear, Microchip, and Maxim remain lower after falling AH yesterday.
- With the decliners including many microcontroller, analog/mixed-signal, and telecom equipment chipmakers, TI (TXN -7.3%) might be the biggest culprit: The analog/DSP giant blamed soft telecom equipment and consumer electronics demand for its numbers, with particular weakness in mobile infrastructure (a 2014 strong point) and PCs; auto and industrial demand was healthier.
- On its CC (transcript), TI attributed the mobile weakness to delayed carrier capacity upgrades. This morning, mobile infrastructure giant Ericsson posted a Q1 miss blamed in part on weak North American 4G spending.
- Likewise, Xilinx (XLNX -1.3%), which has strong 4G infrastructure exposure, stated on its CC (transcript) wireless sales were weaker than expected due to "continued softness in North America and a weakening in China LTE business." Wired infrastructure sales were in-line, and other markets outperformed.
- Qualcomm largely blamed its guidance on the iPhone 6's share gains and a loss of chip share at Samsung, rather than industry demand issues. Altera, Freescale, Maxim, Microsemi, and Synaptics report after the close.
- Chip ETFs: SMH, XSD, PSI, SOXL, USD, SOXS, SSG
- 8 days ago: Chip stocks rally following Intel/Linear's earnings
Apr. 22, 2015, 9:15 AM
Apr. 21, 2015, 5:37 PM
Apr. 21, 2015, 5:35 PM
- In addition to beating Q1 estimates, Broadcom (NASDAQ:BRCM) is guiding for Q2 revenue of $2.1B (+/- $75M), above a $2.07B consensus. Strong Galaxy S6 sales could be partly responsible - Broadcom is believed to supply a Wi-Fi/Bluetooth combo chip and a GPS/sensor hub IC. Continued iPhone 6 and data center hardware strength (driven by Web/cloud demand) might also be factors.
- Q1 gross margin (non-GAAP) was 54.4%, -30 bps Q/Q and +250 bps Y/Y, and slightly below a guidance midpoint of 54.7%. However, GM is expected to rise to 56% (+/- 75 bps) in Q2.
- In addition, R&D/SG&A spend is expected to drop ~$15M Q/Q (+/- $10M). Thanks to Broadcom's baseband modem exit, R&D spend was down 15% Y/Y in Q1 to $539M, and SG&A spend 4% to $177M.
- $335M was spent on buybacks, providing a lift to EPS. Broadcom established a $1B 2015 buyback authorization last December.
- BRCM +5.5% AH to $46.38, slightly topping a 52-week high of $46.31.
- Q1 results, PR
Apr. 21, 2015, 4:08 PM
- Broadcom (NASDAQ:BRCM): Q1 EPS of $0.64 beats by $0.04.
- Revenue of $2.06B (+4.0% Y/Y) beats by $50M.
- Shares +2.4%.
Apr. 20, 2015, 5:35 PM
Apr. 9, 2015, 9:52 AM
- CNBC's David Faber has reported Intel (NASDAQ:INTC) has ended talks to acquire FPGA vendor Altera due to a failure to agree on price. That has fueled speculation Intel will make a bid for Broadcom (NASDAQ:BRCM), which competes with Intel in several telecom/networking chip markets and complements the chip giant's offerings in many others.
- Also possibly helping Broadcom: Ladenburg Thalmann has launched coverage with a Buy rating and $51 target.
- With a current $26.3B market cap - a buyout price would likely have to be over $30B - Broadcom would be a big fish to swallow. Q1 results arrive on April 21.
Apr. 6, 2015, 11:02 AM
- Though Chipworks' teardown indicates Samsung replaced (Broadcom partner) Murata's Wi-Fi/Bluetooth modules in the Galaxy S6 with its own, Morgan Stanley thinks the module uses a Broadcom (BRCM +0.7%) combo chip. The firm notes a Wi-Fi module page on Samsung's site shows options for Broadcom and Qualcomm silicon.
- Between the expected combo chip win and a GPS/sensor hub chip win (uncovered by Chipworks), MS thinks Broadcom's S6 content share is above expectations. "We did not expect Broadcom to add sensor hub content to the GS6."
- The firm also sees Avago (AVGO +0.6%) as a winner, estimating its content share is rising to ~$5 from ~$2-$3 with the S5. The company's 4G amplifier/FBAR filter strengths are likely helping.
- Meanwhile, NXP (NXPI - unchanged) is seen holding onto NFC controller/secure element slots for Chinese S6 models. Chipworks' teardown revealed a Samsung NFC controller, while a Chinese teardown revealed a chip said to be an NXP NFC controller. NXP's PN547 controller was used in S5 models globally.
Apr. 3, 2015, 3:20 PM
- Whereas Qualcomm (NASDAQ:QCOM) had six chips designed into many Galaxy S5 models, a Chipworks teardown of Samsung's (OTC:SSNLF) Galaxy S6 didn't turn up a single Qualcomm part.
- In addition to eschewing the Snapdragon 810 app processor (widely reported, and hinted at by Qualcomm itself) in favor of its 8-core Exynos 7420, Samsung (possibly prioritizing margins over performance/battery life) replaced Qualcomm baseband modem, power management, RF transceiver, and envelope tracking chips with home-grown parts. As expected, Samsung is also using its own DRAM/NAND chips and image processor.
- Though Chipworks says it needs to confirm, the site believes Samsung is also using its own NFC controller. NXP (NASDAQ:NXPI) supplies the S5's NFC controller (as well as the iPhone 6's).
- Broadcom (NASDAQ:BRCM) might also be a casualty of Samsung's attempts to buy local: Whereas the S5 contained a Wi-Fi module from Broadcom combo chip client Murata, Chipworks uncovered a Samsung Wi-Fi module - Samsung has already been using home-grown combo chips in cheaper phones. On the other hand, a Broadcom GPS/GNSS chip is included.
- A Texas Instruments (NASDAQ:TXN) wireless power receiver handles wireless charging for the S6; many expected IDT (NASDAQ:IDTI), which supplies a transmitter chip for the S6's wireless charging pad, would score the design. Meanwhile, Cirrus Logic's (NASDAQ:CRUS) Wolfson unit supplies an audio codec IC, and Maxim (NASDAQ:MXIM) is providing an audio amplifier and complementary power management IC.
- Skyworks (NASDAQ:SWKS) and Avago (NASDAQ:AVGO) have won RF slots: The former provides a multi-mode/multi-band front-end module and antenna switch, and the latter two power amplifier modules. Both companies also had S5 design wins.
- Not surprisingly, InvenSense (NYSE:INVN) is providing a 6-axis gyroscope/accelerometer (the MPU-6500). As was rumored, STMicroelectronics (NYSE:STM) won the touch controller slot, beating out S5 supplier Synaptics.
- While Qualcomm lost out on the S6, the company has landed a number of other Snapdragon 810 design wins for high-end Android phones. The Snapdragon 820, which sports a next-gen ARM CPU core (Kryo) and Qualcomm's Zeroth neural networking tech, begins sampling in 2H15. 3D SoCs (said to enable a 50% shrink in die size) are expected to enter testing in 2016.
- The Chipworks teardown follows a long list of glowing reviews for the S6 - reviewers especially like the 2K display and Samsung's decision to go with a metal/glass body instead of the usual plastic - and reports of production hikes and strong pre-orders. Sales start on April 10.
- Update: A Chinese S6 teardown turned up a chip said to be an NXP NFC part; its name (the 66T05) is very different from the chips in NXP's announced NFC controller line. A Sprint RDF file indicates Sprint's version of the S6 features Qualcomm's MDM9635 modem. That suggests Samsung could use Qualcomm modems for phones requiring 3G EV-DO compatibility (those used by Sprint, Verizon, and a handful of overseas carriers).
Apr. 1, 2015, 6:49 PM
- Broadcom (NASDAQ:BRCM) asserts its new BCM58100 microcontrollers (MCUs) are the first secure MCUs to have built-in NFC radios. The chips, which have begun sampling, are aimed at mobile point-of-sale (mPOS) terminals, PCs, home automation devices, security systems, and other products that could interact with NFC-capable smartphones/tablets.
- Broadcom also claims the chips deliver "unmatched performance" and (through a proprietary tamper protection/encryption architecture called BroadSAFE) superior security.
- The chips take aim at NXP (NASDAQ:NXPI), a top player in both the secure microcontroller and NFC chip markets. Thanks to strong Apple NFC chip orders, NXP saw an 81% Y/Y increase in Secure Connected Devices segment sales in Q4 to $349M. The company launched new secure microcontrollers in February.
- Broadcom and NXP also compete in the smartphone/tablet NFC chip market.
Apr. 1, 2015, 1:24 AM
- "The iPhone 6 (NASDAQ:AAPL) Has Met Its Match," reads the headline for the WSJ's review of Samsung's (OTC:SSNLF) Galaxy S6.
- Reviewer/iPhone 6 owner Joanna Stern: "Like a child who just found out that Santa isn’t real, I have spent the past week questioning everything I know." She's a fan of the S6's glass/metal body with dual Gorilla Glass 4 (NYSE:GLW) panes, as well as its 2K OLED display, improved fingerprint sensor, rapid charging support, and 16MP OIS-capable camera. "The Galaxy S6 destroys HTC’s new One M9 and other flagship Android phones ... on photo quality."
- The Verge's Dieter Bohn gives the S6 8.8/10 stars. "Samsung finally copied the right thing: caring about design." Bohn declares the S6 to have "one of the finest screens I have ever seen on a phone," thanks to a 577 PPI pixel density and improved color awareness. He also calls the device (powered by an 8-core Exynos CPU) "probably the fastest Android phone I’ve ever used."
- BGR's Zach Epstein: "Samsung’s Galaxy S6 features a stunning design that manages to be sleek and elegant, yet modern ... Samsung has raised the bar when it comes to smartphone screens ... Samsung finally stopped obsessing about increasing its [camera] megapixel counts and instead focused on improving its optics, design and software performance ... I’ve never used a phone that charged from empty to full as quickly as this one."
- Samsung's software, though declared to be improved from the S5's (less bloatware, and what remains is often buried), still gets some criticism. Epstein reports seeing a lag with some UI features, and Stern is critical of Samsung's icons and keyboard. Also: Reviewers generally see little reason to pay an extra $100 for the curved S6 Edge, and some Android users might not like the S6's lack of a removable battery or microSD slot.
- Ahead of the reviews, there have been reports Samsung has upped S6 production due to strong early interest. The phone goes on sale on April 10.
- Other reviews: TechCrunch, CNET, Re/code, TechRadar
- Expected S6 suppliers: BRCM, INVN, OLED, SYNA, MXIM, IDTI
- A month ago: Samsung launches metal/glass S6 with Gorilla Glass 4, 2K display, new fingerprint sensor
Mar. 30, 2015, 12:44 PM
- "We've wanted to upgrade Broadcom (NASDAQ:BRCM) since the company's analyst meeting in Dec, but have been waiting for a pullback and a catalyst. We believe we got both last week," says Nomura's Romit Shah, upgrading the chipmaker to Buy and hiking his target by $10 to $50.
- Shah: "Broadcom remains very cheap, per our estimation, trading at 15x free cash flow (minus stock comp), versus a comp average of 18x. The discount reflects distrust in management after one bad acquisition and failed attempts in baseband." He thinks management isn't getting enough credit for recent moves to cut stock compensation spend (often criticized), boost capital returns, and increase financial transparency.
- Shares have gradually moved higher amid a 1% gain for the Nasdaq. They're within $2.50 of a 52-week high of $46.31. They moved higher during the final minutes of trading on Friday following reports Intel is in talks to acquire FPGA vendor Altera.
- Nomura downgraded Broadcom to Neutral last May, when shares were at $30.56.
Mar. 27, 2015, 4:54 PM
- After falling hard on Wednesday amid cautious remarks from TSMC (TSM -1.1%), and falling again (to a lesser extent) on Thursday in the wake of SanDisk's warning, chip stocks rallied during the final 30 minutes of trading (SOXX +2.8%) in response to a WSJ report stating Intel is in talks to buy FPGA vendor Altera. A deal would be among the biggest in the chip industry's non-stop consolidation wave, rivaled only by NXP/Freescale.
- In addition to Altera rivals Xilinx and Lattice (previously covered), chipmakers catching a bid included Avago (AVGO +2.8%), InvenSense (INVN +2.6%), Cirrus Logic (CRUS +2.5%), Synaptics (SYNA +1.9%), Analog Devices (ADI +2.5%), QuickLogic (QUIK +3.8%) (a smaller FPGA maker), and Fairchild (FCS +3.2%).
- InvenSense has occasionally been the subject of speculation Intel or Qualcomm could make a bid. Acquisition-hungry Avago, meanwhile, is reportedly on the hunt for new deals after bidding for Freescale.
- More than a few analysts have defended chip stocks following the TSMC remarks. Jefferies and Susquehanna have argued TSMC's issues are due to share loss to Samsung (partly for Apple/Qualcomm orders), and BMO notes Nvidia (a major TSMC client) recently disclosed adding Samsung as a foundry partner. It's a fan of Synaptics and Maxim (MXIM +2.2%) due to their Galaxy S6 exposure.
- BofA/Merrill reports seeing pockets of excess chip inventory (for PCs and emerging markets smartphones) during a Taiwanese trip, but thinks Apple and Samsung phone-related orders are healthy, as are auto, industrial, and data center chip demand.
- Credit Suisse: "Our cyclical and structural call on Semis remains unchanged – cycle-to-date has been well behaved, Semi rev to global GDP is poised to inflect higher and Semis relative valuation still attractive – growing top/bottom line faster than SPX, twice the margin profile, essentially same dividend yield trading at a two turn discount."
- Chip ETFs: SMH, XSD, PSI, SOXL, USD, SOXS, SSG
Mar. 27, 2015, 11:48 AM
- After falling 8.3% over the last two days thanks to a major chip stock selloff, Skyworks (NASDAQ:SWKS) is recovering some of its losses in the wake of a $15 Northland Securities target hike to $105. Northland's target was at $80 prior to Skyworks' Jan. 22 FQ1 beat.
- Meanwhile, Citi and Rosenblatt are dueling over near-term smartphone demand. Citi has respectively cut its 2015 and 2016 smartphone unit growth forecasts to 16% and 13% from 19% and 15.5% due to a belief Chinese/emerging markets demand is softer than expected. "We expect a challenging outlook for smartphone companies with high China exposure." With OEMs typically pricing phones in dollars, a strong dollar is seen hurting sales to "price-sensitive markets" in general.
- Rosenlatt, by contrast, says supply chain talks suggest little has changed. "We don’t believe that Taiwan Semi‘s and SanDisk’s forecast cuts are related to the overall smartphone industry ... We believe that Samsung is increasing [Chinese] production from 3 million per month in Q1 to 7-8 million per month in Q2. Qualcomm (NASDAQ:QCOM) and MediaTek are also seeing strong orders from China."
- In addition to Qualcomm/MediaTek, Rosenblatt expects Skyworks, Avago (NASDAQ:AVGO), Synaptics (NASDAQ:SYNA), and Micron (NASDAQ:MU) to benefit from healthy Chinese demand. The firm argued back in December Skyworks and Micron would benefit.
Mar. 25, 2015, 3:57 PM
- With the Nasdaq down 2.3%, only a handful of tech companies are posting 2%+ gains. Meanwhile, the ranks of those posting 4%+ losses are considerable.
- Notable decliners include telecom/networking chipmakers Broadcom (BRCM -5.3%) and PMC-Sierra (PMCS -4.4%), chip equipment giant Applied Materials (AMAT -5.5%), optical component vendor Finisar (FNSR -6.7%), smart grid hardware/software vendor Silver Spring (SSNI -7.9%), Chinese app developer Cheetah Mobile (CMCM -4.4%), cable infrastructure/set-top vendor Arris (ARRS -4.8%), server OEM Super Micro (SMCI -5.8%), IP licensing firm Finjan (FNJN -13.8%), and cloud life sciences software leader Veeva (VEEV -5.7%).
- Broadcom, PMC-Sierra, and Applied Materials have joined a slew of other chip industry names in posting steep losses. Finjan is reversing yesterday's big gains. Cheetah Mobile, which sold off post-earnings last week, announced today's it's the lead investor in a $24M funding round for social/mobile ad platform Nanigans; the move follows the $58M purchase of French mobile ad network MobPartner.
- Previously covered: Solar stocks, Mobileye, GoPro, Groupon, On Track, Netlist, Baidu/Qihoo, AMD, Yingli, Lexmark/Kofax
Broadcom Ltd. designs, develops and supplier of a broad range of analog and digital semiconductor connectivity solutions. It serves four primary end markets: wired infrastructure, wireless communications, enterprise storage and industrial & other. The company product's includes data center... More
Industry: Semiconductor - Broad Line
Country: United States
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