Does Mr. Market See Broadcom Corporation (BRCM)’s Potential?

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Broadcom (BRCM)It’s been long since I’ve recommended that investors consider giving Broadcom Corporation (NASDAQ:BRCM) a place in their portfolio, like I did earlier this year in February. However, the stock has barely budged since then, and its performance over the last one year hasn’t been noteworthy either. However, Broadcom Corporation (NASDAQ:BRCM), the company, has done really well and its prospects are as good as ever.

Solid as ever

Its recently-reported first-quarter results tell us exactly why Broadcom is a stock worth buying, as the company beat estimates and guided for a better second quarter as well. Revenue of $2.01 billion trumped consensus estimates of $1.91 billion, and was 10% higher than the year-ago period. Non-GAAP net income grew 3.4% from last year to $400 million, or $0.65 per share, comprehensively ahead of the $0.56 consensus estimate.

For the second quarter, the company expects revenue of $2.1 billion at the mid-point, which was ahead of the $2.05 billion estimate compiled by Bloomberg. Following such an impressive report, Broadcom Corporation (NASDAQ:BRCM) shares surged 6.4%, and I hope that the market has finally recognized this stock’s potential as it can only get better going forward.

Diversification with growth

The company’s presence across a wide range of applications, including mobile devices, NFC, set top boxes, data centers and many others, means that it’s well-positioned to benefit from the proliferation in connectivity going forward. This solid diversification is one of the most important reasons why Broadcom is worth a look, and not just because it supplies chips to Apple Inc. (NASDAQ:AAPL).

Given the Street’s love (hate?) for Apple, I’ve seen Broadcom tagged as an “Apple supplier” many times, ignoring the solid prospects of its overall business. The company’s advances in the baseband market, its presence in budget mobile devices in emerging markets and its enterprise business are all solid reasons why Broadcom Corporation (NASDAQ:BRCM) is worth an investment, apart from just Apple Inc. (NASDAQ:AAPL).

All the fuss surrounding Apple usually affects its suppliers negatively, and Broadcom is no exception. However, it should be kept in mind that Apple is still selling a good number of devices, and filling up Broadcom’s coffers. Since Broadcom supplies a lot of components for the iPhone 5, the fourth-gen iPad, and most importantly, the iPad mini, it is in a good position to benefit from iDevices going forward.

As Apple Inc. (NASDAQ:AAPL) readies to refresh its product line up, and probably introduce a low-cost iPhone to tap the emerging markets, Broadcom should see a bump in revenue. Broadcom had supplied a couple of chips for the iPad mini. With the next version of the tablet expected to sport a retina display, sales should probably exceed the first iPad mini, resulting in better top lines for both Apple and Broadcom Corporation (NASDAQ:BRCM).

And once again, given the Street’s obsession with Apple, Broadcom’s Samsung account seems to take the backseat. Broadcom is a long-time fixture inside Samsung’s devices as well, including flagships such as the S3, the Note 2, and the recently released S4. Also, Broadcom supplies its 3G baseband chips to second tier Samsung devices such as the Grand Duos and the Galaxy Fame which are targeted at emerging markets.

According to Bloomberg, Samsung and Apple together account for around 30% of Broadcom’s top line. With both the behemoths going strong, it would be more or less safe to say that the prospects of almost one-third of Broadcom Corporation (NASDAQ:BRCM)’s business are quite bright.

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