GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

This Chipmaker's Diversification Makes It a Solid Long-Term Bet

August 19, 2014 | About:
amal.singh70

amal.singh70

0 followers

Broadcom (BRCM) made a smart move not long ago when it chose to jettison its cell baseband chip business. Having neglected to discover a purchaser for the unit, Broadcom is presently slowing business down. The organization is chopping down 20% of its workforce with a specific end goal to wind up leaner, and this is required to enhance its performance going ahead.

Be that as it may, Broadcom's second-quarter results were mixed, as it missed on the top line. In any case, its gross margin was strong. Broadcom is now looking at different growth areas, and it stands to increase new revenue sources from Apple (AAPL).

Restored focus

The organization is depending on its strong item improvement to address its existing markets and new industries. For instance, Broadcom has presented another 25-gig Ethernet switch standard in infrastructure to assist customers in dealing with the exponential development of movement in the server farm. This is a smart move, as server farm construction is increasing at a fast pace. As per a business survey by Technavio, the worldwide server farm construction business sector is required to increase at a compound yearly development rate of over 22% until 2018, opening up handsome opportunities for Broadcom.

Broadcom is also transitioning to high-proficiency feature coding (HEVC) and Ultra HD in broadband. Administration also reported share gains in passive optical networks (PON) while another item cycle in broadband access is an alternate tailwind.

Apple's home computerization could be a catalyst

The organization is now joining forces with Apple on the Homekit stage. Through Homekit, Apple is looking to increase its presence in home robotization market. The purpose of Homekit is to permit users to control their households with Apple devices.

Apple is creating it standard through this stage, so chipmakers such as Broadcom will discover an alternate territory for development going ahead.

Addressable markets are enhancing pleasantly

Broadcom is also seeing strength in both set-top box and broadband modem platforms. Its set-top box chips did well in the previous quarter with 8% sequential development, determined by share gains in the developing markets. Development of features such as multi-stream transcoding, more tuners and a robust blend of Moca-empowered platforms are the drivers in this segment. Also, the transition to HEVC and Ultra HD is normal to be the more extended term development driver in the set-top box market.

In the broadband segment, modem sales developed more than 15% year-over-year, determined by strength in link, DSL and PON. Broadcom has dispatched its latest era LTE offerings for small cells, which are required to convey higher effectiveness at a lower cost to enhance its performance in this business sector. Besides, the LTE manufacture and backhaul deployments, especially in China, are driving development on the service supplier side.

On the integration side, Broadcom is focusing on the Internet of Things and wearables. It has declared amazing failure power integration solutions for the cutting edge wearables. It has also presented its first era system-on-a-chip for wireless charging. On the access point business, the world's fastest Wi-Fi switch presented is fueled by Broadcom.

Conclusion

Broadcom's efforts look impressive. By leaving the cell baseband business, where it was confronting stiff rivalry from Qualcomm and Mediatek, the organization has made the best choice. It can now focus on markets that can convey development over the long haul, making it a stock worth considering for investors' portfolios.


Rating: 0.0/5 (0 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK