What to Watch with Broadcom

The basic underlying theme to watch at Broadcom (BRCM - Analyst Report) continues to be the progress with the launch of new, more highly integrated IC products at more advanced progress geometries. This is the ultimate (and most likely the only) differentiating factor in every end-market where Broadcom competes. Keeping in mind the 2x sequential growth in sales of integrated Bluetooth+FM chips for cell phones in the last quarter, we also think that the upcoming integrated HSUPA chipset for cell phones with RF, Bluetooth, and FM functionality will add to the sales growth.

Broadcom consistently introduces highly integrated solutions for some of the fastest growing markets in the technology sector. BRCM's prospects for growth continue to outpace its peers, given its leading ability to integrate communications and processing in both current and emerging markets.

Nevertheless, based on our pro forma EPS estimate, we believe the stock is richly valued, despite the company's leading position in wireless, broadband and networking. Moreover, we are also concerned with the cyclicality inherent in the semiconductor market and the potential difficulty to penetrate any particular market or a combination of markets. Also, the potential always exists for current customers to switch to an in-house chip design, or to undertake such capabilities.

Accordingly, we maintain our Hold rating and our target price of $24. Our price target is based on roughly 16.4x our fiscal 2008 pro-forma EPS estimate of $1.46, which excludes the cost of stock-based compensation.

Read the full analyst report on BRCM