QUOTE AND NEWS
SeekingAlpha  Oct 24  Comment 
Forbes  Oct 23  Comment 
The company expects its revenue to decline marginally in the current quarter, in line with seasonal trends. It anticipates revenue from the baseband business to decline to $50 million, and believes its positions in all three business segments...
Benzinga  Oct 23  Comment 
CNBC Fast Money's Guy Adami said in the segment of the show called "Stock Pops & Drops" that iRobot Corporation (NASDAQ: IRBT) jumped 14.01 percent on a great quarter and a great guidance. Adami thinks that the valuation of the stock is a little...
MarketWatch  Oct 22  Comment 
Tech stocks mostly rise, with Yahoo Inc. and Broadcom Corp. showing noticeable gains following those companies’ latest earnings reports.
TheStreet.com  Oct 22  Comment 
The following Broadcom conference call took place on October 21, 2014, 04:45 PM ET. This is a transcript of that earnings call: Company Participants T. Peter Andrew; Broadcom; VP of Treasury and IR Scott McGregor; Broadcom; CEO, President...
Forbes  Oct 22  Comment 
In early trading on Wednesday, shares of Broadcom (BRCM) topped the list of the day's best performing components of the S&P 500 index, trading up 6.3%.  Year to date, Broadcom registers a 33.9% gain.
TheStreet.com  Oct 22  Comment 
NEW YORK (TheStreet) -- Shares of Broadcom were gaining 6.3% to $39.69 Wednesday after beating analysts' estimates for earnings and revenue in the third quarter. The chipmaker reported earnings of 91 cents a share for the third quarter, beating...
Benzinga  Oct 22  Comment 
Broadcom Corporation (NASDAQ: BRCM) reported unaudited financial results for its third quarter ended September 30, 2014 on Tuesday. Net revenue for the third quarter of 2014 was $2.26 billion, beating estimates of $2.18 billion. This...
Motley Fool  Oct 22  Comment 
The company does it again!




 

Broadcom is a top-ten semiconductor firm that designs, develops, and sells system-on-a-chip and software solutions to manufacturers of wired and wireless communications products. Broadcom's diversified catalog of products is used in digital cable, satellite and IP set-top boxes, media servers, high definition televisions and HD-DVD players, cable and DSL modems, wireless local area networks, cell phones, and mobile multimedia devices such as video iPods. One of Broadcom's specialties is chip integration, the placement of multiple functions on one chip, providing end-to-end solutions for its customers. Only a few companies possess the ability to create integrated chips.

Broadcom operates as a fabless semiconductor company. ("Fabless" means the firm designs, develops and supplies semiconductors, but outsources the actual manufacture and packaging of its semiconductors to other companies called semiconductor foundries that specialize in semiconductor production.) Broadcom holds the number two position in the fabless semiconductor industry, behind only Qualcomm.

Broadcom is on the cutting edge of the highly competitive semiconductor industry, facing competition from other fabless firms as well as semiconductor manufacturers like Texas Instruments. Broadcom and the other semiconductor companies often experience difficulties because of the cyclicality of the semiconductor industry. Broadcom's sales are also heavily dependent upon the health of the end-markets in which Broadcom's products are used.

One advantage Broadcom possesses in the semiconductor industry is the breadth of its technological experience and its ability to draw from its extensive tech patent portfolio (ranked fifth most valuable in the entire technology industry). This knowledge allows Broadcom to successfully place multiple functions into single chips in order to offer unique, integrated solutions to its customers; Broadcom's chip integration ability is matched by few competitors. Other important industry trends for Broadcom include the shift towards 3G in cell phone technology and the growing sales of HDTVs and HD-DVD players.

Company Overview

Broadcom is one of the world's leading semiconductor companies. Broadcom also has the fifth most-valuable patent portfolio in the technology industry worldwide, topped only by tech giants Intel (INTC), Hewlett-Packard Company (HPQ), International Business Machines (IBM) and Micron Technology (MU). In order to protect itself from changes in individual product markets, Broadcom provides a wide array of semiconductor solutions to a range of customers, as is detailed below.

Business & Financial Metrics[1]

In 2009, Broadcom generated a net income of $65.3 million on revenues of $4.27 billion. This represents a 69.6% drop in net income on a 4.7% decrease in revenues from 2008, when the company earned $214.8 million on $4.49 billion in revenues.

Business Segments[2]

  • Mobile and Wireless Networking (38.3% of total revenue): This segment provides semiconductor solutions for wireless LAN equipment, cellular and area networking equipment, and mobile technology such as cell phones and portable media players. Through this segment, Broadcom provides the semiconductors used in 3G and Bluetooth technology as well as in video iPods and the Nintendo Wii.
  • Broadband Communications (34.0% of total revenue): This segment provides a range of silicon solutions that are used in broadband modems, digital cable, both satellite and IP television signal reception equipment, residential gateways, and high definition televisions and HD-DVD players.
  • Enterprise Networking (23.5% of total revenue): Broadcom's second-largest operating segment provides semiconductor solutions designed for usage in computers, servers, and networking equipment for small-to-medium sized businesses, corporate enterprises, and service providers. Broadcom's products enable the high-speed transfer of voice, data, audio, and video across wired and wireless networks.

Fabless Business Model

Broadcom is a fabless semiconductor firm; it designs, develops and sells its semiconductors but outsources the actual production of its semiconductors to manufacturing companies called foundries. Being a fabless company brings several key advantages and disadvantages for Broadcom:

Advantages

  • Broadcom is less affected than its competitors by cyclicality in the semiconductor industry because it does not need to operate expensive manufacturing facilities, the cost of which is exacerbated by downturns in the semiconductor industry and which reduce gross margins.
  • Broadcom also does not need to invest in expensive manufacturing equipment in order to keep up with changing technology. This frees up cash flow within the company for research and development expenses.
  • Broadcom's products are all produced on a standard CMOS process. The majority of foundries are familiar with these standard processes, which gives Broadcom the ability to switch foundries if necessary (and thus to ensure competitive rates from foundries).

Disadvantages

  • Broadcom is heavily reliant upon its foundries, without which Broadcom would have no way to supply its customers with its products. All of Broadcom's foundries are located in Asia, two of which are in Taiwan and have been closed because of earthquakes and subsequent power outages in the past. Future earthquakes or another outbreak of SARS in Asia could seriously cripple Broadcom's ability to supply its customers with products.
  • Relying upon foundries for the manufacture of its products limits Broadcom's control over delivery schedules as well as over production costs and methods.

Trends and Forces

3G Mobile Phone Technology Sales

Broadcom has been increasing its emphasis on sales to the mobile phone industry which has become one of the largest industries in the US. The standard technology in mobile phones is changing to third-generation or 3G technology. 3G is a superior type of wireless technology allowing for high-speed data transmission that enables mobile Internet-browsing, downloading, and media usage. Broadcom is one of the leading producers of 3G semiconductor solutions and as 3G technology becomes the new standard, Broadcom has the opportunity to win over new customers in the cell phone manufacturing industry. An example of such activity recently occurred as Verizon Communications (VZ) agreed to use Broadcom's 3G technology in its mobile phones. Broadcom also has deals with Samsung and Motorola. The market opportunity for Broadcom with 3G is huge and more deals with cell phone providers would significantly fatten Broadcom's revenues and profits.

Growth of Home Entertainment Sector

The growing demand for expensive, high-tech products for home entertainment is contributing significantly to sales of semiconductors for Broadcom. Broadcom is one of the companies pushing the envelope in home entertainment by enabling the convergence of digital entertainment with its semiconductors. Broadcom provides key components for high definition televisions and high definition DVD players (for both Blu-Ray players and HD-DVD players), and digital cable, satellite and IP set-top television reception equipment. As more consumers decide to upgrade their home entertainment systems and purchase HDTVs, high-def DVD players, and digital television service, Broadcom's products will rise in demand.

Susceptibility to Changing Demands in End-Markets

One major risk Broadcom faces is its reliance on the demand for the end-market products that use Broadcom's semiconductors. The demand for products such as HDTVs and wireless LAN equipment drives the demand for Broadcom's products. If the demand for one of Broadcom's major customers' products were to fall significantly, possibly if replaced by a new technology released by a competitor, the demand for Broadcom's semiconductors would fall and substantially affect revenues. As the technology industry is fast-paced and highly competitive, such scenarios could feasibly occur, although they are unlikely to be large enough to seriously harm Broadcom.

Competition

Broadcom is the number two ranking fabless semiconductor company in terms of revenue (ranked only behind Qualcomm) and one of the top ten semiconductor companies when compared across fabless and in-house manufacturers. Broadcom has a first or second place in market share for most of its product portfolio, but one of its biggest markets, cell phones, is highly competitive and Broadcom is just beginning to gain ground as a player in the market. It faces heavy competition in the mobile phone market from industry leaders Texas Instruments and Qualcomm. Also, one of Broadcom's main products is television set-top boxes, a market which is becoming more competitive as Conexant has begun encroaching upon Broadcom's past customers in the market. Overall, because Broadcom's product and solutions portfolio is so diverse, it faces various competitors in different markets across the globe:

  • QUALCOMM (QCOM) : Qualcomm is the leading fabless semiconductor company. Qualcomm's product portfolio is focused on wireless technologies, particularly in mobile phones. Although Qualcomm holds an advantage over Broadcom in terms of revenue and profitability, Broadcom has a more diversified product portfolio and has been making up ground in its contest with Qualcomm in the mobile phone semiconductor market as well.
  • Texas Instruments (TXN) : Texas Instruments is one of the largest semiconductor companies in the world. The bulk of Texas Instruments' revenue comes from its Semiconductor operating segment, which produces analog and digital semiconductors. The key end markets for Texas Instruments' semiconductors are mobile phones, HDTVs, and projectors and cinema screens. TI is one of the stiffest competitors Broadcom has in supplying the cell phone industry with semiconductors because TI has a distinct advantage in both size and scale.
  • STMicroelectronics N.V. (STM) : STMicro is one of the world's largest semiconductor companies. STMicro is one of Broadcom's most direct competitor as STMicro produces semiconductors that are used in the same products as Broadcom's, including mobile phones, digital cable, satellite and IP television set-top box products, Bluetooth devices, HDTVs and wired and wireless networking equipment. STMicro is based in Switzerland but approximately 13% of its sales in come from North America, making it a prime competitor of Broadcom both domestically and internationally.
  • Marvell Technology Group (MRVL): Marvell is a fabless semiconductor company that is slightly smaller than Broadcom. Marvell also had virtually no operating margin despite exhibiting a 50% gross profit margin because of high operating costs (largely due to a nearly $78 million acquisition of Intel's communications and applications business). Marvell is a direct competitor to Broadcom in supplying semiconductors used in mobile phones, wireless LAN equipment, wired networking equipment, and portable media devices.
  • Conexant Systems (CNXT): Although Conexant is a relatively small competitor, it is one of Broadcom's main competitors in set-top boxes for televisions, particularly in digital cable set-top boxes. Within this market Conexant is a major semiconductor provider and has begun working with Motorola (MOT), Broadcom's largest customer. Losing more of Motorola's demand for semiconductors could seriously harm Broadcom. However, Conexant's threat to Broadcom is mostly limited to the digital set-top box market,as the company's product portfolio is much smaller and more concentrated than Broadcom's, focusing on semiconductors designed for use broadband modems and home networking equipment.

References

  1. BRCM 2009 10-K pg. F-4  
  2. BRCM 2009 10-K pg. 50  
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