Broadcom (BRCM, Financial) is an established semiconductor manufacturer that has a strong product portfolio. The Company’s revenue stream is mainly from Broadband and Connectivity, and Infrastructure and Networking. As per the research, the anticipated global subscriber to broadband will be 940 million by the end of 2018. This market size is bound to influence the revenue stream of the company and leverage its growth in future. The investor of tech stock can always consider Broadcom as it can provide good long-term returns.
Quarter Overview
The company recently released first quarter results for fiscal 2015. The consolidated revenue grew 3.7% year over year, to record $2.06 billion as compared to $1.98 billion in the same term last year. The revenue also surpassed the consensus estimate of $2.008 billion.
Non-GAAP net income grew 98% year over year, to record $390 million ($0.64 per share) as compared to $197 million ($0.33 per share) in the same quarter last year. The net income also surpassed the consensus estimate of $0.60 per share.
The healthy revenue growth in the quarter was primarily driven by strong demand of Smartphone and broadband connectivity products like modems and set top boxes. The broadband connectivity products revenue gained 13% year over year, to record $1.41 billion.
Tailwinds
The IoT market, which is still in budding stage, is anticipated to reach a market size of $19 trillion in the next five years. As the IoT market matures, more and more devices will get inter-connected. It is expected that 25 billion devices will be connected by end of 2015, and the count is anticipated to reach 50 billion by 2020. This market size will be catalytic to revenue growth of the company arising from its connectivity products in future. WICED development kit is the company’s product that caters to the IoT market and is a fusion of hardware and software. Broadcom is already recording a growth for this product, and the growth momentum is anticipated to continue as more and more devices get interconnected with time.
Cisco has also announced that it has partnered with spider cloud to deliver Broadcom based small cell solutions. Cisco Small Cell solutions is an innovative solution to mobile networking that transforms small cells into a platform for service innovation. The small cell solution is featured with easy to deploy and is very innovative and this technology is being embraced globally. This will certainly propel Broadcom growth in future.
Journey Ahead
The company anticipates consolidated revenue of $2.15 billion (+/- $75 million) for the next quarter. The infrastructure and network business of the company is expected to further grow, while the broadband and the connectivity business is expected to be flat or slightly up. The non-GAPP gross margins are expected to be around 56% (+/- 75 basis points). As per the consensus of analyst, next year the company is anticipated to grow 7.3% and for next five years the company is expected to grow at 13.3% every year.
Conclusion
The company had a strong start for the fiscal 2015; the revenue was much more than the expectation of the company and the consensus of analyst. The guidance for the Q2 is also solid and the company expects to display strong performance fiscal 2015. Furthermore, the IoT market will also propel revenue growth for the Company. Broadcom’s forward P/E of 14.18 is also quite impressive and with this P/E it can provide good long-term returns.
I feel that this can be a perfect stock to include in your portfolio that can provide good long-term return.
