Over the last decade, Broadcom Corporation (NASDAQ:BRCM)’s share price has risen about 90%. Its revenue growth over the last 10 years has been better than the semiconductor industry average. Moreover, in the last three years its revenue has grown at an average rate of 21.3%. The numbers clearly depict how good the company has been in the past; let’s see if it has the potential to replicate the same in the future.
The tech industry is all about innovation and having diversified product lines and diversified markets to reduce their risk exposure. As the mobile industry is moving quickly toward smartphones and tablets, it is to Broadcom’s advantage. Its chips power many of the handheld devices for Apple and Samsung. As these companies together own more than 62.2% of the U.S. market for smart devices, Broadcom will gain from their extensive market presence in the future as well.
The developed markets are nearing saturation and the sales of high-end, costly phones is also slowing, which is clearly evident from disappointing sales of Samsung’s flagship Galaxy S4 launched recently and other flagship phones by its competitors. I believe emerging markets should provide future potential growth for Broadcom Corporation (NASDAQ:BRCM), and thus Broadcom’s approach to enter into partnerships with local carriers and handset makers in the emerging markets seems like a smart move. Broadcom is currently working with China Unicom (Hong Kong) Limited (ADR) (NYSE:CHU) and is introducing smartphones priced near $100, which should potentially widen the company’s future revenue generation capacity.
4G and 5G: the game changer
Broadcom Corporation (NASDAQ:BRCM) recently launched BCM21892, the smallest LTE 4G enabled chip in the industry. This smaller chip comes with two advantages: first, it’s cheaper to produce; and second, it’s more energy efficient. Moving forward, as the 4G/LTE is the future of wireless connectivity; a strong footing should benefit the company.
Broadcom Corporation (NASDAQ:BRCM) has taken its innovation to a level further and is the first company to introduce a 5G WiFi combo chip for smartphones, tablets, and other mobile devices. This revolutionary move in the 5G network makes it the only chip manufacturer that’s bidding on the 802.11ac standard for every chief WiFi product segment. The 5G technology will offer significant increases in WiFi coverage and transfer speeds, and will also consume considerably less power. This will enhance the efficiency to about six times the current levels.
The two major competitors in the semiconductor chip industry for Broadcom are Intel Corporation (NASDAQ:INTC) and QUALCOMM, Inc. (NASDAQ:QCOM). Qualcomm is the absolute market leader in manufacturing LTE chips for smartphones, owning about 86% of the total market for LTE chipsets in 2012. The company also leads the market in mobile-device graphics processing units (GPU), and last year, its market share was about a quarter of the entire market.
QUALCOMM, Inc. (NASDAQ:QCOM) owns thousands of patents that assure a steady stream of revenue annually and which are in no way going to be affected in the near future. Its shipment of mobile chips increased 14% in the second quarter, to 173 million compared to last year, improving the revenue by 24% to $6.12 billion. The momentum is expected to continue in coming quarters too, with revenue expecting a boost of about 25%.
Currently, QUALCOMM, Inc. (NASDAQ:QCOM) earns more royalties from 3G than 4G, which is becoming a potential future concern as its revenue from its QTL business will eventually fall when developed markets shift to 4G. As it earns a 5% royalty for 3G, and roughly 3.3% for 4G/LTE, the revenue on the whole will fall even if the number of users doesn’t.