Broadcom (BRCM): 'First class' in chips

"It's now time to watch for buying opportunities -- and one of the companies on my personal list is Broadcom Corp. (NASDAQ: BRCM), whose shares are in buying range right now," says analyst Glenn Rogers.

 

The contributing editor to Gordon Pape's Internet Wealth Builder explains, "This semiconductor maker is a good choice for investors who would like to add to their information technology position with shares of a first-class company."

"Broadcom, located in Irvine, California, designs semiconductors for the wired and wireless communications industry. They are a major supplier to Apple's iPhone, which has taken the world by storm this past year.

 

"Specifically, they power the brilliant display screen that has captivated users since the launch of the iPhone last year. (Full disclosure: I've just picked up my new 3G iPhone).

 

"They also provide the chip that delivers the GPS navigation in the new iPhone. The company holds over 2,000 U.S. and foreign patents and has more than 7,400 pending patent applications.

 

"But Broadcom is not just an iPhone supplier. They also power the Motorola TV set top boxes, Netgear wireless routers, Bluetooth and Blu-ray applications, digital television, VOIP, etc.

 

"There are lots of chipmakers out there but Broadcom operates in the areas that offer the highest growth potential and the least commoditization in this sector.

 

"Financially, the company is solid with annual revenues in 2007 of about $3.8 billion and net income of $213 million (37c a share fully diluted, figures in U.S. dollars).

 

"For the latest quarter, ending June 30, Broadcom reported net revenue of $1.2 billion, an increase of 16.3% over the first quarter of 2008 and up by 33.7% from the $897.9 million reported for the second quarter of 2007. 

 

"Net income was $134.8 million (25c per share), compared with $74.3 million (14c) for the first quarter and $34.3 million (6c per share) for the second quarter of 2007.

 

"That represents a year-over-year profit improvement of more than 300% on a per-share basis. The company also raised guidance for the rest of the year. 

"Broadcom shares traded as high as $43.07 last October so the stock looks inexpensive at this level and value buying right now seems very sensible. The 2009 P/E estimate is 16 which is reasonable for a high-growth business and well below the five-year median level of 24 times earnings. 

"There are also some outstanding legal issues between Broadcom and Qualcomm but those seem to be going Broadcom's way.

 

"The company is debt-free and recently authorized a share buy-back of $1 billion that extends to 2011. I would prefer a dividend instead of a buy-back, but you can't have everything. Buy with a target of $35."