Broadcom Could Jump 40% on Growing Smartphone Market - Barron's

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Includes: AAPL, AVGO, GOOG, NTGR
by: Rachael Granby

Broadcom (BRCM), a cutting-edge chip maker specializing in "system-on-a-chip" semiconductors and multimedia software applications, has provided chip technology for Apple's (OTC:APPL) new iPhone, Motorola's (MOT) cable set-top boxes, Netgear's (NASDAQ:NTGR) wireless routers, and Bluetooth, among other major names in the field. The company, emerging as an aggressive competitor in the market for smartphones, has the potential for a 40% surge in share price according to Barron's Sandra Ward.

Broadcom's Q2 performance beat expectations. Its mobile and wireless business reported a 50% gain in revenue year on year and earnings rose by more than 200%. Estimates for the rest of the year have been raised and growth trends are expected to stay strong. Despite the company's performance, shares have lagged since Q2 results were released at the end of July. Expenses rose and some were concerned that Broadcom was returning to its past spendthrift ways. The company offered reassurances, reiterating its target marketshare of 10-15% of the smartphone market (vs. the 2-3% it currently holds).

According to Daniel Berenbaum, a communications semiconductor analyst at Cowen & Co., "They are in the right markets with the right products. You have to like that and you have to like a company that has executed so well." Berenbaum predicts 10% revenue growth at Broadcom in 2009 and 15% growth in 2010 with an estimated free cash flow of $1B or more. On his calculations, that would value the stock at $37.75, about 40% higher than where it trades today. "It's cheap," says Tony Weber of Veredus Assest Management, "and revisions are going up."