Broadcom Covers Their Bases
Peter is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As a consistent performer in its industry, Broadcom Corporation (NASDAQ:BRCM) is a global innovation leader in semiconductor solutions for wired and wireless communications. The company reported better than expected underlying profitability for its first quarter ended March 31, 2012 with a remarkable product gross margin at 48.1%. With the acquisition of NetLogic complete, the company posted revenues of $1.83 billion this quarter. Though excluding the NetLogic revenue, Broadcom saw a marginal decline in its result, which can be attributed to an industry slowdown.
Broadcom’s BCM4334 Dual-band WI-Fi chip will power the communications for Apple’s (NASDAQ: AAPL) iPhone 5 to be launched in October this year. Their energy efficiency is important to Apple where style and user experience is a very high priority. The BCM4334 dual-band Wi-Fi chip, is a follow-up component to the BCM4330 chip that is featured in other Apple devices.
A Step Ahead of Competitors
In January, Broadcom added to its arsenal of Mobile & Wireless products the vertical which accounts for almost half of its revenue (about 48%). Broadcom recently announced its first family of chips for the new 802.11ac Wi-Fi it calls "5G Wi-Fi." 5G refers both to 5th generation wireless as well as transmitting in the 5GHz band. The BCM4360, BCM4352, BCM43526 and BCM43516 chips improve Wi-Fi range while also using power more efficiently. They are capable of speeds beyond 1Gbps, creating the first gigabit-capable wireless connection allowing for HD streaming over wireless. Netgear (NASDAQ: NTGR) will have its first 5G routers in Best Buy Stores by early July.
By acquiring NetLogic, Broadcom gained the ability to provide a complete communications solution for networking infrastructure through their industry-leading embedded processors. With the sale complete and the first quarter numbers out, the Infrastructure and Networking vertical saw its contribution to total revenues rise 1.6% quarter to quarter.
The Qualcomm Incursion
Broadcom’s biggest worry in the mobile space is the SoC offerings from Qualcomm (NASDAQ: QCOM) and their acquisition of Atheros whose 5G wireless technology is being integrated into the Snapdragon S4 line of SoCs. This puts any dual-chip solution at risk of being left out. Single chip solutions are very attractive from a device design perspective as they are able to provide solid performance at the right price while maintaining heat management. They also keep device size as small and light as possible which is a very powerful combination that will put a lot of pressure on Nvidia and Texas Instruments.
But, considering the current troubles that TMSC is having with their 28nm process, this is limiting the quantity of S4’s and baseband chips that can reach the market, pretty much forcing this generation of phones and tablets to source other solutions. This situation will not last, however, and Qualcomm’s lead in quad core A15-like performance single chip SoC solutions is formidable for the next year.
Triple Play for China
Broadcom’s partnership with the #2 cable company in China, Wasu, will keep them at the center of the expansion of broadband TV into the rapidly growing Chinese HD television market. Powering the EoC is a Broadcom BCM43xx chip discussed above. The first deployment is in Hangzhou and subscribers will get the so-called triple play option: phone, internet and cable. The smart TV market is set to grow by 50% in 2012 according to DisplaySearch. Samsung’s Smart TV app store is accessed 2.7 million times per day.
Then there is the low-cost smartphone market that a number of manufacturers are interested in for emerging markets like China and India. Broadcom is a player in that market as well, releasing a dual core A9 SoC for that market. This is a market that will see the biggest growth at the margin with a potential addressable market of hundreds of millions of people. Like Qualcomm, Broadcom has the advantage of selling both halves that other manufacturers just don’t have.
Along with the coming iPhone 5 and the new line of MacBooks, both Air and Pro, Broadcom has most of the Chinese market covered at the consumer electronics level.
PeterPham8 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Qualcomm. Motley Fool newsletter services recommend Apple and Netgear. 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.
