QUOTE AND NEWS
Benzinga  Mar 27  Comment 
In a report issued Friday, Tigress Financial's Chief Investment Officer Ivan Feinseth downgraded shares of Broadcom Corporation (NASDAQ: BRCM) from Strong Buy to Buy. He explained that, while the company is "in a great position to benefit from...
Forbes  Mar 27  Comment 
Broadcom is a global leader in the set-top-box market and the segment is a large focal point for the company. It has a full suite of mid- and high-end set-top box platforms providing a number of solutions for operators to offer to their...
Benzinga  Mar 26  Comment 
In a report published Thursday, Morgan Stanley analysts maintained an Overweight rating on Broadcom Corp (NASDAQ: BRCM), with a price target of $50, after the comm equipment team, led by James Faucette, had a closer look at the company's 25 GB...
Wall Street Journal  Mar 19  Comment 
Broadcom and others are churning out chips to help devices move data between computers and the Web, and they’re increasingly popular with those that don’t want to design their own.
Motley Fool  Mar 13  Comment 
Here are two companies that Intel might consider buying in a bid to diversify its revenue stream beyond PCs.
Benzinga  Mar 13  Comment 
Analysts at Canaccord Genuity downgraded Broadcom Corp. (NASDAQ: BRCM) from Buy to Hold. The price target for Broadcom has been lowered from $50 to $47. Broadcom shares have jumped 49.37% over the past 52 weeks, while the S&P 500 index has...
Benzinga  Mar 13  Comment 
TheStreet.com  Mar 13  Comment 
NEW YORK (TheStreet) -- RATINGS CHANGES Broadcom was downgraded to hold from buy at Canaccord Genuity. There is limited earnings upside potential, Canaccord said. Twelve-month price target is $47. Rockwell Collins was upgraded to buy from...
Motley Fool  Mar 12  Comment 
Why new Apple iPhones might not see a connectivity chip upgrade this year.
Market Intelligence Center  Mar 12  Comment 
Broadcom Corp (BRCM) presents a trading opportunity that offers a 3.97% return in just 64 days. A covered call on Broadcom at the $43.00 level expiring on May. '15 offers an assigned return rate of 3.97% or 22.61% annualized. This trade offers...
Forbes  Mar 5  Comment 
Investors in Broadcom Corp. (NASD: BRCM) saw new options become available today, for the April 24th expiration. At Stock Options Channel, our YieldBoost formula has looked up and down the BRCM options chain for the new April 24th contracts and...




 

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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