Tuesday, April 26, 2011

Broadcom Corp. (NASDAQ: BRCM): Q1 Earnings Preview 2011

Broadcom Corp. (NASDAQ: BRCM) is scheduled to release its first-quarter earnings after the closing bell on Tuesday, April 26, 2011. Analysts, on average, expect the company to report earnings of 59 cents per share on revenue of $1.81 billion. In the year ago quarter, the company reported earnings of 57 cents per share on revenue of $1.46 billion.

Broadcom ships nearly a billion chips a year for use in devices all up and down the digital food chain, from the tiny radio in a Bluetooth earpiece to the processors that enable the Internet's largest data servers to communicate.  Broadcom is the leading supplier for 11 of the 18 types of chips it makes, including those that go into Blu-ray players and cable modems. The company designs chips for for many of the world's bestselling consumer devices: Android phones and Wiis, iPhones and iPads, to name a few. 

Broadcom has grown by acquiring smaller firms that develop complementary technologies in network communications. In the last decade, it has bought 43 companies, many of them in Europe, Asia and the Middle East.

In the preceding fourth quarter, the Irvine, California-based company's net income was $266.19 million, or 47 cents per share, compared to $59.20 million, or 11 cents per share, in the year-earlier quarter. Revenue surged 45 percent to $1.94 billion from $1.34 billion last year. Analysts, on average, expected the company to report earnings of 74 cents per share on revenue of $1.90 billion.

At its last earnings call in Feebruray, the company said that it expects first-quarter revenues in the range of $1.75 billion to $1.85 billion. 

The company has benefited from sturdy demand for products in its mobile markets. Broadcom is well placed in the fast-growing wired and wireless communications markets, with cutting-edge solutions for a growing number of connected users who are demanding more content and bandwidth. The market for wireless connectivity devices are expected to grow, driven by the increasing demand for smartphones, tablets, netbooks and digital TVs. Broadcom is focused on the most innovative technologies related to connectivity, bandwidth and content. Broadcom’s product leadership and solid financial performance and strong cash flow generation continue to be strong positives. 

Meanwhile, smartphone chipmakers and hardware manufacturers are poised for substantial growth in 2011 on the strength of even stronger smart phone sales. Infrastructure growth and improvements worldwide have created more markets for the smartphone. The rapidly growing, billion plus populations of China and India, for example, still have relatively low smartphone sales. Between the two countries, there are under 200 million smartphone users combined.

Moreover, the rapid rise in users of smartphones and tablets, alongside mobile computers has prompted a vast increase in demand for higher bandwidth services. StrataXGS, its most recent switch solution promises carriers flawless network migration onto 4G as well as improved bandwidth and connectivity capabilities. 

During the quarter in review, the company announced the signing of a broad reaching license agreement with ARM Holdings plc (NASDAQ: ARMH), which enables Broadcom to access the entire range of ARM processors, from the smallest, lowest-power ARM Cortex-M0 processor, through to the newly introduced, high-performance Cortex-A15 application processor and beyond. Also, the company agreed to acquire Provigent, a privately-held provider of mixed signal semiconductors for microwave backhaul systems. Broadcom expects the acquisition of Provigent to be neutral to earnings in 2011.

The company's stock currently trades at a forward P/E (fye Dec 31, 2012) of 13.17and PEG ratio (5 yr expected) of 0.90. In terms of stock performance, Broadcom shares have gained nearly 12 percent over the past year.

Full Disclosure: None.
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