Broadcom Might Scale Greater Heights after a Stellar Quarter
Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
So Apple (NASDAQ: AAPL) has missed. But it was not entirely unexpected as the world was waiting for a refreshed version of the iPhone and consumers put off their purchases of the iPhone 4S as it draws to the end of its lifecycle. Also, the apparition of economic downturn, which has haunted a number of companies this earnings season, played its part.
Apple’s stigma rubbed off onto its component suppliers, and few of them trended lower in extended trading after Apple’s report. However, communications chips maker Broadcom (NASDAQ: BRCM) decided to take the opposite route as it beat estimates in the second quarter and guided for a better third quarter, sending the shares towards the sky.
A few details
Broadcom’s stellar performance and upbeat outlook might come as a surprise to some, but not to me. A cutting-edge technology, illustrious clients and diversified businesses are reasons why I am a Broadcom bull.
The company’s revenue jumped 10% from last year to $1.97 billion in the quarter. Having smartphone bellwethers Samsung and Apple in your client list certainly helps and this showed in the quarter. The stupendous success of the Galaxy S III and the relatively stupendous sales of the iPhone this past quarter should have helped Broadcom’s top line.
Apart from this, there are a number of other reasons why Broadcom is ahead of the industry. The company’s end-markets are witnessing strong growth. Its revenues are going higher as more consumers move towards smartphones and more data centers are built. Moreover, Broadcom is positioning itself nicely to cash in on the data boom.
With the increasing number of smartphones, tablets and other mobile devices, data consumption is set to jump massively. And Broadcom’s latest 5G Wi-Fi chips deliver more speed at higher efficiency than the current chips. With the number of Wi-Fi enabled devices set to reach 3 billion units in the next 3 years, mostly powered by the 5G standard developed by Broadcom and Skyworks, both these companies are set to gain enormously from this technology.
Also, Broadcom’s management says that it’s growing faster than the semiconductor industry and hence, it has guided better than other players such as Intel (NASDAQ: INTC) and Texas Instruments. Intel is finding difficult to grow amid soft demand in North America and Western Europe. Moreover, slowing growth in emerging markets is another area of concern. But Broadcom is still upbeat about prospects despite facing some weakness in Europe, as it is focused on increasing market share and negate the economic effects.
After posting a solid quarter, I expect bigger things from Broadcom going forward. The company projects revenue of $2 billion to $2.15 billion in the current quarter. Moreover, with Apple’s next iPhone in the offing and the company’s technological leadership being another advantage, the second half of the year can be even better for Broadcom investors.
TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Intel. Motley Fool newsletter services recommend Apple and 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.