Broadcom Corporation (BRCM), China Mobile Ltd. (ADR) (CHL): A Few More Reasons Why This Stock Was Unfairly Punished

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Broadcom Corporation (NASDAQ:BRCM)In the previous part of this post, I’d explained why the Street was overly negative about Broadcom Corporation (NASDAQ:BRCM)’s second-quarter performance and the accompanying outlook. The weakness around its mobile and wireless business, which makes up 46% of the top line, seemed overblown. But what seemed completely ignored in analysts’ opinions about Broadcom Corporation (NASDAQ:BRCM) was the strength in its remaining 54% of the business.

Broadcom Corporation (NASDAQ:BRCM) doesn’t live and die by its mobile business only, even though mobile was probably the reason behind a downcast outlook as Samsung slows down production of its latest flagship phone. Broadcom stands on three pillars, and focusing on just one is certainly not the way to go. The company’s Broadband Communications and Infrastructure & Networking businesses have been doing pretty well, and they are worth analyzing.

A big opportunity

Beginning with the broadband business, the company witnessed a 5% jump in revenue from last year to $568 million. Growth was seen on a sequential basis as well, whereas in comparison, the mobile segment had declined 3% on the same basis due to short-term headwinds. The broadband communications segment provides solutions for set-top boxes and media servers, and has a lot of potential in the emerging markets.

For instance, Broadcom Corporation (NASDAQ:BRCM)’s chip was selected by Indian pay TV provider Dish TV, and another major player, Tata Sky, also chose Broadcom’s MPEG-4 standard definition set top box solutions. These are huge customer wins in my opinion, since digitization has a long way to go in India.

The number of households hwith aving a TV in India is expected to grow from around 160 million currently to 200 million by 2017, with both cable digitization and direct-to-home services growing in sync. The Indian government has been making digitization necessary in a phase-wise manner, with the final phase expected to be complete by 2015. This digitization drive will require set-top boxes or a customer won’t be able to watch TV. The total subscription revenue of the cable TV industry in India is expected to reach $6.4 billion by 2020, up from $4.2 billion in 2011, including broadband growth.

So, Broadcom Corporation (NASDAQ:BRCM) is certainly making the correct moves in this huge emerging market, and its solutions for set-top boxes and connected homes should bring in revenue in the long run. Then again, the company’s broadband access business is also doing well, as Broadcom saw design wins related to passive optical networks (PON). The PON market is expected to grow at a solid rate of 20% until 2016, and the company is expecting to make the most of it.

Moreover, Broadcom Corporation (NASDAQ:BRCM)’s 3G small cells and femtocells are also finding traction on the back of growth in LTE and next-gen 3G networks. For example, in the previous quarter, ZTE selected Broadcom’s small cell baseband processors for residential access points. So, all in all, it can be said that the company’s broadband business has certain tailwinds that cannot be ignored, and this is a reason why investors should consider buying more shares at depressed levels.

There’s more to Broadcom

But wait, the catalysts don’t stop here! I haven’t focused on the final piece of the puzzle yet — the Infrastructure & Networking segment. This segment brought in $512 million in revenue in the previous quarter, an improvement of 7% from the prior-year period. The performance in this segment was driven by large build outs, while the service provider segment also witnessed strength as Broadcom’s customers participated in tenders across the globe.

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