Avago Technologies Ltd (AVGO): After Proving Its Mettle, This Company Is in for Better Times Ahead

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Moreover, Avago’s mobile business should benefit from the proliferation of 4G devices and its presence in budget smartphones in regions such as Taiwan, Korea, and China.

Wired infrastructure and industrial getting better

Avago saw revenue from its wired infrastructure business, which accounted for 27% of total revenue, grow 7% on a sequential basis. The jump was driven by recovery in enterprise spending on the back of data center build outs. Going forward, Avago is expecting the growth of data centers to drive its infrastructure business as the company has landed a few design wins.

In addition, the industrial end market also turned in a revenue improvement of 4% on a sequential basis, which was surprising as Avago Technologies Ltd (NASDAQ:AVGO) had expected a decline. This unexpected improvement helped the company beat estimates and the trend is expected to continue as Avago is looking at growth in mid-single digits in the industrial business in the ongoing quarter.

However, investors do need to keep a couple of things in mind. Avago Technologies Ltd (NASDAQ:AVGO) isn’t witnessing solid demand from carriers in its wired infrastructure business as telecom spending isn’t picking up as expected. But then, the build out of the TD-LTE network in China may provide it with some more push. Also, while the company is expecting a good performance from its industrial business, a slowdown in the global economy, especially in China, might turn the tables against it.

Why buy

There might be more exciting companies out there to ride the growth of smartphones and tablets, but Avago Technologies Ltd (NASDAQ:AVGO)’s exposure to the industrial and wired infrastructure markets, which are showing signs of recovery, gives it more revenue streams which shouldn’t be ignored.

A trailing P/E of just 17 times, which is well below the industry average, and a forward P/E of around 13 look pretty enticing for a semiconductor stock that’s offering diversification, growth, stability, and a dividend yield of 2%.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple.

The article After Proving Its Mettle, This Company Is in for Better Times Ahead originally appeared on Fool.com.

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