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Broadcom Corporation (BRCM): Why QUALCOMM, Inc. (QCOM) Is Still a Good Investment

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At times, it makes more sense to consider a side bet instead of making a big bet on the main event. Many people have a viewpoint about the showdown between Samsung Electronics, Apple Inc. (NASDAQ:AAPL), and several others in mobile device market.

Broadcom Corporation (BCOM)

It’s a little harder, however, to visualize how Qualcomm, Inc. (NASDAQ:QCOM) won’t win in any of those scenarios. There always seems to be questions surrounding Qualcomm, Inc. (NASDAQ:QCOM), such as: Why don’t they have more operating leverage? Just how good is Apple’s unit growth? Could Broadcom Corporation (NASDAQ:BRCM) grab some market share?

With Broadcom’s chips operating in all types of activities and devices, growth can be preserved even if one of the corporations that makes use of its devices has a difficult quarter or two. New Samsung orders can provide Broadcom Corporation (NASDAQ:BRCM) an additional boost as the next wave of mobile phones arrives at the market. In my opinion, Qualcomm continues to be an excellent stock to own, provided that you have confidence that the mobile device sector will experience growth.

Qualcomm’s fiscal first quarter results deliver once again

Qualcomm, Inc. (NASDAQ:QCOM) has reported a very strong start to its fiscal year, with a good overall performance across the board. The company’s revenue increased by 29%, not bad for the typical sell-side guess. Chip revenue went up by 34% on even growth in chip shipments and ASPs. Meanwhile, licensing revenue rose 22% on a comparable increase for global handset shipments. Qualcomm reported a 6% rise in average ASPs (the two don’t add up to the total licensing earnings rate of growth because of varying license/royalty rates.)

Qualcomm produced additional sales this quarter that translated into more profits. Gross margin improved somewhat compared to last year (about 20bp), still more than one point better compared to what analysts had anticipated. Operating income increased nearly one-third, despite having high continuing R&D investment charges.

Second quarter appears to be a little more challenging

Qualcomm’s management doesn’t get very aggressive with their guidance, so they might end up having conservative numbers after this quarter. The company did guide a bit above the earlier estimate for fiscal Q2 net income and EPS.

I do anticipate there will be a few issues regarding Qualcomm’s operating leverage. Gross margins looks like they could be under some pressure next quarter, since handset prices reset and also the organization sees a few dis-economies of scale that are associated with new manufacturing runs. Similarly, the company continues to be focused on funneling a considerable portion of its profits into R&D.

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