Broadcom (BRCM, Financial) impressed everyone with strong results recently. The company did well on the back of strength that it is seeing across set top boxes, broadband access and wireless connectivity. On the other hand, the company is also expected to benefit from strength in VDSL. Broadcom is pleased to see increased operator spending in a richer mix of technologies, such as vectoring and channel bonding. Let's take a look at its prospects.
The way ahead
Broadcom is pleased to see steady adoption of it newly brought in wireless technology such as 802.11ac and 2x2 solutions. Seeing the growing adoption, Broadcom has recently released the second generation of its 2x2 MIMO 802.11ac combo chip. This chip is used in high end smartphones and tablets leading them to work faster with low power consumption. This feature is helping Broadcom to ship these chips on a wide space also giving a competitive edge to the company against its peers.
The internet of things market is emerging well and Broadcom sees good opportunities in this market as well. To attract the developers in this area, Broadcom has recently announced WICED sense development kit which is an all in one kit including Broadcom Bluetooth chip, sensors and software stacks which allows syncing to smartphones and tablets. This is expected to be a good introduction by the company in this emerging connectivity market and with this it is expecting to catch good hold of internet of things market.
In addition, it is also putting efforts to for expansion of the data centres by increasing the traffic with faster speed and continued ASIC conversions to merchant solutions. To further support this expansion in the datacentres, Broadcom has recently launched a new family of switch products called as TomaoHawk which is specially designed for 25 and 100 gig applications in the datacentre. Moreover, Broadcom is seeing steady growth which is expected to mainly come from outperforming set-top box and modems.
Conclusion
With a trailing P/E of 58.02 the stock looks expensive and the Forward P/E of 12.72 shows slow earnings growth in the near term. Also, the earnings of the company are disappointing in long term as its earnings are growing at a CAGR of 11.34% which is lower than the industry average of 19.24%/ but the recent studies and reports shows that the company is bringing in innovations and new technologies in the market which might take some time to yield to its fullest. However, for steady income the investors can include Broadcom to their portfolio as of now.
