Broadcom Corporation (BRCM) vs. QUALCOMM, Inc. (QCOM): Which One of These Semiconductor Stocks Is Worth Buying?

Broadcom Corporation (NASDAQ:BRCM) began shipping its fifth generation, or 5G, WiFi family of semiconductors last year. The 5G technology helps wireless devices work faster and carries signals farther with reduced battery drain than previous generations, Broadcom Corporation (NASDAQ:BRCM) said. The company also expanded its wireless product portfolio with NFC quad-core chips, which target growth in mass market mobile phones as well as high-end mobile phones and devices.

Broadcom (BRCM)

Broadcom Corporation (NASDAQ:BRCM) closed its fiscal 2012 with an 8% increase in annual revenue as it gained additional market share in all of its business segments — connectivity and baseband, network solutions, and broadband. This article explains why Broadcom Corporation (NASDAQ:BRCM) is relatively undervalued than arch-rival QUALCOMM, Inc. (NASDAQ:QCOM), and therefore offers a better investment proposition.

The wireless semiconductor market

The wireless semiconductor market is made up of two different markets:

1. Mobile baseband chipsets and application processors market

2. The wireless connectivity solutions market

Broadcom leads the wireless connectivity segment

Broadcom Corporation (NASDAQ:BRCM) is the leader in the wireless connectivity segment with approximately 35% market share. This is the fastest growing segment in the wider semiconductor market. The opportunity in wireless connectivity is primarily driven by the growth of mobile devices. Broadcom’s market share in mobility is 90%, which comprises WiFi, Bluetooth, FM, and GPS solutions solely for mobile platforms. Almost all high-end smartphones use Broadcom Corporation (NASDAQ:BRCM)’s connectivity solutions.

The company has enjoyed major success with its connectivity solutions in smartphones, most notably the main WLAN slot in the iPhone. Broadcom shipped around 200 million connectivity combos in Q4 2012 alone, and its wireless connectivity solutions grew faster than its overall mobile and wireless business in 2012.

Broadcom says that it has invented a chip that can tell your phone where you are all the time without quickly draining your battery. The BCM47521 chip will make it easier to use apps that react to the user’s location. That could include tools that mute an employee’s ringer when they enter the office, send a text message when a child leaves school, or tell a retailer when a loyal shopper is near a store.

Broadcom also claims that it has the industry’s smallest 4G LTE-Advanced modem, theBCM21892. The modem is said to support LTE FDD and TDD, LTE-Advanced with carrier aggregation, HSPA+, TD-SCDMA, and EDGE/GSM. It also supports Band 41 TD-LTE, used by Clearwire, China Mobile, and SoftBank.

Qualcomm leads the baseband and application processors market

QUALCOMM, Inc. (NASDAQ:QCOM) is the leading player in the cellular baseband market with more than 40% market share. QUALCOMM, Inc. (NASDAQ:QCOM) also leads the mobile application processors market with roughly 50% market share in terms of revenue.

QUALCOMM, Inc. (NASDAQ:QCOM) announced Snapdragon 200 and 400 processors aimed at mid-tier and entry-level smartphones. Expected in handsets later this year, the Snapdragon 200 and 400 will balance the high-end 600 and 800 processors introduced in January.

QUALCOMM, Inc. (NASDAQ:QCOM) faces fierce competition from rival NVIDIA Corporation (NASDAQ: NVDA). Many of Qualcomm’s Snapdragon chips integrate LTE into a single chip. By contrast, NVIDIA’s newly announced Tegra 4 uses a separate, standalone LTE chipset, the fifth-generation NVIDIA Icera i500 processor.

NVIDIA’s newly announced Tegra 4i chip will also integrate the Icera i500 modem on-die. It will support 8 primary bands and both 2×2 MIMO and 4×4 MIMO transmission modes on LTE. NVIDIA says the chip will be available in 2014.

Broadcom vs. Qualcomm: The verdict

BRCM Price / Book Value data by YCharts

Broadcom has a market cap of $17.31 billion with a PE multiple of 26.8, while Qualcomm’s market cap is $113.35 billion with a PE multiple of 17.4. Although Broadcom appears to be richly valued in terms of the PE multiple, the company is attractively valued than QUALCOMM, Inc. (NASDAQ:QCOM) in terms of both Price to Book and Price to Sales ratios.

With Broadcom operating in the high growth segment of the wireless semiconductor market, I feel Broadcom is a better investment opportunity than Qualcomm at the current price.

Anindya Batabyal has no position in any stocks mentioned. The Motley Fool recommends NVIDIA. The Motley Fool owns shares of Qualcomm.

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