Here's Why Broadcom Corporation Is Poised to Perform
Shares of Apple component supplier Broadcom have been relatively steady over the past six months, gaining around 10%. The company was struggling a year ago, as its mobile business was on the decline. Broadcom is still feeling the aftershocks of that decline, as revenue in the recent first quarter was down 1.0% year over year. But, going forward, Broadcom's performance looks set to improve due to several reasons.
Broadcom performed well in the first quarter, with revenue above the midpoint of the guided range and ahead of consensus estimates. Earnings also exceeded expectations, driven by strength in broadband and infrastructure. The company is seeing some solid trends in broadband, as operators are deploying the latest technologies, such as VDSL upgrades, to power faster connections in homes.
Also, the industry transition to high-efficiency video coding, or HEVC, is expected to drive Broadcom's set-top box business due to a rise in Ultra-HD video consumption, which will result in increased demand for connectivity solutions.
In mobile, Broadcom is focusing on new, low-power connectivity solutions for wearables. This is a good move, as wearable products are gaining steam and recent launches from Samsung, such as Galaxy Gear and Galaxy Fit, come equipped with Broadcom chips. In addition, Broadcom has also started shipping its dual-core LTE SoC, which is a good move, as the market for LTE handsets is expected to increase at a tremendous pace in the future.
To tap this market, Broadcom is preparing a new family of LTE-advanced products. These new products will include five-mode support with TD-CDMA, along with carrier aggregation and support for Cat 6 connectivity. The company expects that this move will help it better penetrate the Chinese market. With this new family of products, Broadcom expects to outperform rival solutions, including higher-grade offerings like Cat 7, Cat 9, and Cat 10. The company is aiming for downstream data rates of up to 450 Mbps and upstream data rates up to 100 Mbps with its new products.
Apple will drive growth
Apart from the LTE handset market, Broadcom can also expect an increase in revenue due to Apple's new product cycle. Apple is expected to release its iPhone 6 in August. Moreover, the smartphone company could introduce two iterations of the iPhone, and both are expected to sport larger screens.
As reported by Time, Apple could produce more than 80 million next-generation iPhones. The Cupertino-based company has sold more than 500 million units in the device's seven-year history, averaging about 70 million units per year. So, this aggressive product plan from Apple could lead to incremental revenue for Broadcom.
A look at data centers and infrastructure
Broadcom is also looking to tap growth in data centers. The transition to public cloud and the broad adoption of its merchant platforms has enabled the company to grow its business in this segment. Going forward, Broadcom is trying to deliver innovative solutions to benefit from the industry transition to more virtualized, scalable data center architectures.
As a part of this initiative, Broadcom has launched its Open Network Function Virtualization platform. This platform will allow applications to be implemented across multiple SoC solutions. The company has also announced the OpenFlow Data Plane Abstraction specification, which it says is the industry's first openly published implementation of a physical switch hardware pipeline abstraction. Also, Broadcom published its 25 Gbps ethernet specification, setting the stage for next-generation in-rack server connectivity.
To strengthen its infrastructure segment, Broadcom has introduced its first millimeter wave SoC for mobile backhaul and front-haul applications. The company claims that this delivers an industry-leading 10 Gbps capacity for service provider markets. With such products, Broadcom expects its infrastructure and networking business to rise sequentially in the second quarter. The communications chipmaker major believes its infrastructure business is on track for a third consecutive year of double-digit growth in 2014.
Hence, Broadcom is making good moves in several departments. The company expects its new product introductions to do well, while the growth in markets such as infrastructure, mobile, and wearables will help it perform better in the long run. Considering this scenario, investors would be wise to invest in Broadcom.
The biggest thing to come out of Silicon Valley in years
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.
The article Here's Why Broadcom Corporation Is Poised to Perform originally appeared on Fool.com.Ayush Singh has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.