Broadcom (BRCM, Financial) posted strong results in the recently reported quarter. The company is pleased to deliver impressive improvement in revenue and EPS. Also the stock is presently trading close to its 52-week high which can help it to gain good market share in the upcoming quarters as well. The results were in line with the company’s expectations.
The decline in the broadband and connectivity business is a matter of worry for Broadcom. But the management is confident of performing well in the future on the back of some strategic initiatives that it is undertaking to regain its lost ground in the weaker segments. Let us have an insight on how Broadcom is positioning itself towards profitability.
Focusing on growth areas
The technology is growing every day, and many companies dealing in technology in any sort are having a good bite of this cake, and Broadcom is no such exception. The strong results and segment growth is a clear indication of Broadcom’s future success. It is seeing good growth in set-top box as the customers in the developed market are rapidly upgrading to new media server architecture. As a result of this, Broadcom is pleased to see good traction for its first Ultra-HD boxes in the market.
This is expected to be a good business for Broadcom in emerging markets; in fact, its operators such as Dish in North America, Free in France and Tata in India have already started offering Ultra-HD set-top boxes to their subscribers. In addition, as the 4K technology is also growing, Broadcom is expecting its 15 operators to launch 4K television service in 2015.
Connectivity will be a growth driver
Moving ahead, Broadcom is focusing closely on its connectivity business whose performance was soft in the recently reported quarter due to new smartphone launches. But, it is also seeing good adoption for new wireless technology such as 802.11 ac and 2x2 solutions. Besides this, Broadcom is also seeing positive customer response for its 4x4 multi-user MIMO WiFi chip which will benefit its retail routers, broadband access gateways and set-top boxes.
Moreover, Broadcom is also looking for other ventures to improve its business profitability. In this regard, it continues to diversify into new markets such as internet of things, automotive, wearable and small cells. Out of all the other ventures, Broadcom is seeing good opportunities in Internet of things market. It is now engaged in refreshing its product portfolio for internet of things market and is bringing products that are specific for different market segments. It is also putting efforts to grow its sales for this it has also announced expansion of its distribution channel with more than 40 new partners.
Broadcom wants to maintain its market-leading position in 3G. It is working closely with some of the top companies that can be contributors to its growth in the future; for example, it is working with SpiderCloud which has announced its business to supply Verizon with 4G enterprise small cells. In addition, it is also launching LTE and TD-SCDMA solutions to hold a cutting edge among its peers in the market.
Moreover, Broadcom is also trying to uplift the performance of infrastructure and networking group. It is confident of performing better in the long term on the back of many growth drivers including new buildouts and expansion of data centers, increasing data traffic at faster speeds and ASIC conversions to merchant solutions.
Conclusion
The stock does look expensive with a trailing P/E of 42.31 while the near-term growth is steady as its forward P/E of 15.08 indicates. The profit margin 7.78% is also impressive at these levels. Moreover, the growth trend of Broadcom is positive and the company has been performing well in last one year. The stock price is also impressive, trading closely to its 52-week high. Considering its track record and prospects I would like to suggest the investors that Broadcom is definitely a good pick and they should not mind buying this stock at higher premium.
