(BRCM) Broadcom Reiterated at Neutral

We recently reiterated our Neutral recommendation on leading chipmaker Broadcom Corporation (BRCM).

The company recently updated its guidance, raising the lower end of its revenue guidance. Amid a weak macro environment, the positive guidance from Broadcom is quite encouraging. Earnings estimates have increased.
The company expects revenues to come between $2.0 billion and $2.10 billion compared to with the previous guidance of $1.95 billion – $2.10 billion.
The increase in guidance was attributable to slightly better-than-expected revenue in the Mobile & Wireless business.
The company is focused on innovative technologies related to connectivity, bandwidth and content, which has enabled it to capture a large chunk of market share.
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 demand more content and bandwidth. The company primarily targets important customers for strategic relationships.
It The company has entered into agreements with major firms like Cisco Systems (CSCO), Nortel and Sony (SNE). In particular, strong demand for smartphones and tablets are catalysts for Broadcom. Customers like Samsung, Cisco and Apple (AAPL) are ramping new products such as iPhone5 and Galaxy series and Broadcom is set to capitalize on the same. The market for wireless connectivity devices is expected to grow, driven by increasing demand of for smartphones, tablets, netbooks and digital TVs.
The company has consistently delivered strong results. Broadcom reported adjusted earnings per share (excluding one-time items) of 57 cents per share in the third quarter of 2012, beating the Zacks Consensus Estimate by a penny.
However, we remain concerned about the pressure on margins margin pressure due to the accelerated new product ramps, which typically carry lower margins early in the product lifecycle, acquisition related costs and business concentration.
The company currently faces competition from bigwigs like QUALCOMM Incorporated (QCOM) and Texas Instrument (TXN). QUALCOMM’s operating unit, Qualcomm Technologies, Inc., recently completed the acquisition of EPOS Development, Ltd.
Hence, we maintain our Neutral recommendation. Our Neutral recommendation is supported by a Zacks #3 Rank, which translates into a short-term rating of Hold.

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