So, it’s not all doom and gloom for Broadcom, and it should also be noted that the company also supplies its chips for the iPads. Moreover, Broadcom’s potential with its cutting-edge NFC chips and 5G Wi-Fi chips, which grew 50% on a sequential basis in the previous quarter, should not be ignored. In addition, the company is focused on diversifying its mobile customer base further. It was recently selected by ZTE to supply small cell baseband processors for its residential access points.
It is small things like these that we shouldn’t miss, as the world is becoming a more connected place by the day and Broadcom’s products should be in great demand since its chips enable connectivity. Too much has probably been made of the company’s weak performance in 3G baseband, but no emphasis has been laid on 4G efforts.
Don’t be blinded
Moreover, Broadcom is a pretty small player in baseband processors, occupying just 5% according to Strategy Analytics. So, a relatively weak performance in that sector shouldn’t have led to such a massive sell-off. So now, it looks that weakness at Samsung might be one of the reasons why Broadcom issued a soft outlook. Simply said, it’s a short-term problem, as smartphones are still going to grow at an annual rate of almost 19% till 2016, according to IDC, and Broadcom’s products have a lot of room for growth still.
Connected homes, Internet of Things, and even connected cars could be some of the drivers that we are ignoring right now. And the thing which irked me the most when analysts were analyzing Broadcom’s quarter was that the Broadband Communications and the Infrastructure & Networking businesses, which together accounted for more than $1 billion in revenue weren’t discussed at length, while its small 3G misstep garnered so much attention.
Stay tuned
These other two businesses have been performing very strongly, and I would focus on them in my next post. However, for now, one thing is pretty much clear — Broadcom’s mobile weakness seems overblown and the company should recover once the short-term headwinds clear off.
Check back this space for more reasons why Broadcom is still a good stock to hold and why investors should consider scooping up more shares at these depressed levels with the stock trading at a forward P/E of just under 10 times.
The article A Few Reasons Why This Stock Was Unfairly Punished originally appeared on Fool.com is written by Harsh Chauhan.
Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Harsh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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