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Neutral on Broadcom
by Zacks Equity ResearchJune 20, 2012 | Comments : 0 Recommended this article: (0)
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Fueled by the broadband communications explosion, Broadcomhas enjoyed robust growth since its inception. The company is focused on the most innovative technologies related to connectivity, bandwidth and content. The continued expansion of pay-TV and Internet access services internationally, especially in China and India, provide significant opportunity for growth.
Broadcom is well positioned in the fast-growing wired and wireless communications markets, with cutting-edge solutions for a growing number of connected users that demand more content and bandwidth. In particular, strong demand for smartphones and tablets, particularly from customers like Samsung and Apple, is boosting Broadcom's growth.
The company recently launched the industry’s first SOC devices with the potential of 5G WiFi. These chips enable fastest and most reliable Gigabit connectivity for home and small/medium business (SMB) networks. These chips will complement the company’s full line of5G WiFi 802.11ac solutions. With the ever-growing demand for wireless connectivity ubiquitously, there is increasing reliance on wireless networks, which in turn, stresses the legacy 802.11a/b/g/n networks. The new 5G WiFi enables mobile device users to stream digital content between devices faster, and simultaneously connect more wireless devices to home and enterprise networks, while conserving battery power.
Earlier, earnings estimates jumped significantly after the company reported better-than-expected results for the first quarter of 2012.
Broadcom’s product leadership, solid financial performance and strong cash flow generation continue to be positives. However, we remain concerned about the pressure on margins due to the accelerated new product ramps, continuous acquisitions and business concentration. We await a better entry point, and therefore continue to maintain our Neutral recommendation on the stock.
Our Neutral recommendation is supported by a Zacks #3 Rank, which translates into a short-term rating of Hold.
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