Broadcom (BRCM, Financial) cheered the street with its third quarter results that was mainly driven by strength in its connectivity chips along with well managed expenses. The company’s top line was led by a strong demand ranging from Apple’s iPhone and iPads to Bluetooth and Wi-Fi Networks. The numbers grew year over year and also topped the analyst’s expectations. Led by its strong performance, the stock is currently near its 52-week high and Broadcom seems to be on the right track to carry this momentum in the days ahead.
What's driving growth
During the quarter, emerging markets played a significant role, which boosted its revenue with the consumption of new HD designs. And the demand is expected to keep rolling in as the company improves its product mix with its new launches. Broadcom introduced the second generation 2x2 MIMO 802.11ac combo chip during the quarter.
There were other interesting launches as well, but the management has especially set its hopes high on the Internet of Things market. In this direction, its WICED Sense development kit is a ground breaking technology that will help developers to create innovative products. As we consider its technical aspect, Broadcom’s reliance on this new product does make sense; as it reduces the production time of new products related to Internet of Things, which will power the growth in its business in connectivity applications.
Over the period of time, Broadcom has carefully studied the market and therefore its product launches are based on customer requirements. Realizing the need, it recently introduced a new family of switch products called Tomoahawk, having 32 ports of 100 gigabit Ethernet and is specifically designed for 25 and 100 gig applications in the datacenter. The management cites that Tomoahawk is driven by the consumer need for higher data rates and is current sampling with key cloud service provider and communication equipment OEMs.
These new launches will help the company to bolster its business in the days ahead. With such developments in place Broadcom raised its fourth quarter revenue guidance to $2.08 billion-$2.15 billion from $2 billion-$2.15 billion. It also announced its plans to buy back shares worth $1 billion and raise quarterly dividends by 2 cents a share.
Conclusion
Currently it has a trailing P/E of 58.3 compared to the industry P/E of 27.12. But its forward P/E looks impressive at 12.74, which reflects a significant improvement in its earnings in the days ahead. The stock has improved considerably in the past one year and is currently near its 52-week high and considering its future prospects we could see more upside to this stock.
