Is Broadcom a Bargain?

Vijay Nagarajan recently completed his deep-dive analysis on Broadcom (Nasdaq: BRCM). My earlier posts are available here and here.

In Vijay’s analysis, he looks at BRCM’s Strengths and Weaknesses and its diverse portfolio. Of particular interest are his pieces, The Breadth and The Blur and Aggression in the Cell Phone, in which he looks at Broadcom’s push into the highly competitive mobile space, which he says, could blur its focus on its other lines of business. In the post, Time for Stellar Execution , Vijay looks at the company’s plan of reaching 10% market share in cellular baseband by 2009. The design wins with Nokia and Samsung will help it achieve this goal and in fact he says it is positioned to capture around 20% of 3G market in the long term.

After the acquisition of Global Locate, Broadcom yesterday announced the acquisition of Sunext Technology for $48 million. Sunext is a privately held fabless semiconductor company specializing in optical storage technologies.

On January 24, Broadcom reported its Q4 and 2007 financial results. For the full year 2007, net revenue grew 3% to $3.78 billion. GAAP net income was $213.3 million, or $.37 per share (diluted), down 44% from $379.0 million, or $.64 per share (diluted) in 2006.

Q4 revenue was $1.027 billion, up 11.2% y-o-y and 8.1% q-o-q driven by the ramp in new product cycles in the Bluetooth, Wireless LAN and Digital TV markets. GAAP net income was $90.3 million, or $.16 per share (diluted), compared with $27.8 million, or $.05 per share (diluted) in Q3 2007 and $45.1 million, or $.08 per share (diluted) in Q4 2006. It repurchased 11.1 million shares for $338 million in the quarter.

In the quarter, there was strong growth in the mobile and wireless business, which accounted for 37% revenue including $32 million royalty from Verizon. The Enterprise networking business, accounting for 28% revenue, grew modestly. Broadband communications business, accounting for 35% total revenue, declined sequentially mainly due to weakness in satellite set-top boxes offset in part by stronger than expected demand in cable TV.

In Q1 2008, Broadcom expects growth in broadband communications and the enterprise networking groups to be relatively flat. In mobile and wireless, it expects a seasonal decline, offset a little by continuing growth in GPS.

As for 2008, it expects Bluetooth, Wireless LAN and Digital TV to continue to be key revenue drivers. While it will continue to bring new products, it is trying to focus on tightening its processes and moderate its expense growth.

The stock is currently trading around $18.6 as against Vijay’s valuation of $39.30. It had hit a 52-week low of $18.68 on February 20. Market cap is around $10 billion. Investors may want to understand the analysis and see if you agree with Vijay’s conclusion that Broadcom looks like a bargain.