Cecil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The semi-conductor industry faces a constant battle for chip supremacy. During the heights of the PC industry, we saw the rise of Intel (NASDAQ: INTC), AMD, and many other inside-the computer companies. Most of them seem to have disappeared over time but we still see a few re-inventing themselves. So let’s take a look at how some of the inside-the computer companies are set for the mobile boom.
First, let’s take a look at Qualcomm (NASDAQ: QCOM). D.A Davidson analyst Aalok Shah cut his rating for the company from “Buy” to “Neutral”. He points to an emergence in new competitors for the chip maker to be one of the main causes for him to ask investors to stay wary on that stock.
“We believe competition is ramping up in both the high and low end spectrum. We believe Intel will launch its Infineon-based LTE baseband this quarter. In the app processor segment, Nvidia’s Tegra 3 quad-core SoC has won several designs in the tablet market and a few in the smartphone market. In the low/mid-range market Qualcomm is facing stiff competition from MediaTek, Spreadtrum, and RDA as they leverage their presence in the Chinese market to expand in developing regions. We believe Broadcom could be the company’s toughest competitor as it has found success penetrating the mid-range market with design wins through Samsung,” he wrote in a research note.
Intel is quite obviously one of the leaders in the field of semi-conductors, but their stock took a hit recently going down 2.7% to $21.90 after negative reports by two brokerages. Robert W Baird & Co. reduced its target price to $26 from $32. The reason for their cut was revealed as weak demand for notebooks. So you’d imagine that they’d have a lot to hope out of their performance in the mobile industry.
Now let’s look at Broadcom (NASDAQ: BRCM), the very company that Aalok Shah mentioned might be the biggest hurdle that faces Qualcomm. Established in 1991, Broadcom is a global provider of semi-conductors for both wired and wireless communications. Year to date 2012 revenues have shown growth when compared to the same period last year. EBITDA has been on the increase since 2008.
In 2011, around half of their revenue was from mobile and wireless, while the rest was divided between broadband communication (22%), and infrastructure and networking (28%). The company also has excellent exposure to the wireless markets including the big two – Apple and Samsung.
Stephanie Link, Director of Research at The Street says that BRCM is a major supplier to these companies, and it has seen its market share grow in mobile. In fact, its exposure to the iPhone brand in particular could increase with $5-$7 for its combo chips and touch screen related revenue of $2-3 per phone. She added, “BRCM is gaining market share, and has 15% of revenues tied to Apple and 10% tied to Samsung.”
Despite the supply constraints that are facing the iPhone, it seems like a good problem for the company to have, and therefore by extension – Broadcom to have. A supply problem only means that demand for the phone is immense. And with the holiday season approaching, the final sales number at the end of the year for the iPhone should be quite significant. In addition, Samsung recently reported a record quarter with a profit of $7.3 billion. Samsung has got significant global exposure and this too should help Broadcom.
However, despite all of these facts, doesn’t mean that these inside-the computer companies have absolutely nothing to fear. The biggest fear, as I have mentioned earlier is that these companies themselves will go out and start manufacturing their own components. However, when it comes to semi-conductors, it makes no logical sense for a company like Apple or Samsung to make them fully, because most of the other companies mentioned like Intel, Qualcomm, and Broadcom have specialized expertise in that area.
So keeping all that in mind, I’d say that placing a bet on any of these inside-the computer companies wouldn’t go too wrong, especially Broadcom which has always seen steady growth and good numbers.
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ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel and Qualcomm. Motley Fool newsletter services recommend Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.